An investigation by Het Financieel Dagblad revealed that media conglomerate Talpa, owned by John de Mol, has managed to keep its financial figures hidden from the public since 2012. Using clever legal construction, the company continuously postpones its legal obligation to publish its annual figures. However, this method is not new. The structure, known as the 'Blokker construction,' was previously used by the Blokker family to shield financial information. How does this construction work, and is it even legal? Erik de Kloe, Assistant Professor of Corporate Law and Insolvency Law at Erasmus School of Law, provides more insight into this mechanism.
Annual figures provide insight into the company's financial situation. This is important not only for the company but also for shareholders, investors, customers, and other stakeholders. They can assess the company's performance and whether it is financially sound. Publishing annual figures enhances transparency and ensures that companies can be held accountable for their actions. For this reason, the obligation to publish financial statements is enshrined in law. Why has Talpa not disclosed any annual figures since 2012 despite this legal requirement?
The 403 declaration
De Kloe points to the 403 declaration: "Within a concern, certain subsidiaries are exempt from publishing their financial statement under specific conditions. One condition is that the financial data of that subsidiary is included in a so-called consolidated financial statement - a report prepared by the parent company that includes the financial figures of the entire group." The parent company must also file a declaration with the trade register, assuming joint and several liability for debts arising from the legal actions of its subsidiaries. "This way, creditors still have sufficient insight into the finances and are protected by the parent company's liability."
However, something unusual happens in Talpa's case: every time the parent company is due to file its consolidated financial statement, a new parent company is created. This effectively postpones the obligation to publish, keeping the financial figures of the entire group hidden.
Privacy vs. transparency
Talpa has stated that it employs this construction to protect the privacy of its sole shareholder, John de Mol. The company argues that De Mol regularly faces threats. However, how does this privacy argument relate to the importance of financial transparency? De Kloe is clear on this matter: "If you want to take advantage of the convenience of limited liability, you must also bear the responsibilities that come with it. One of those responsibilities is the obligation to publicise the company's financial data. Financial transparency outweighs privacy." He also points out that the requirement to publish financial statements stems from a European directive. Therefore, it is not just a fundamental principle in the Netherlands but across the entire European Union.
"There is a trade-off: in exchange for the obligation to publish financial statements, shareholders and directors of a company are generally not personally liable for the company's debts. They could also choose to run the business as a sole proprietorship or a partnership. In that case, financial data would not have to be disclosed, but the entrepreneur would be personally liable for the company's debts," says De Kloe.
Violation of the obligation to publish
De Kloe suggests that Talpa's use of this structure is likely not legally permissible. "If the parent company does not publish a consolidated financial statement, then the subsidiary does not qualify for an exemption." Failing to meet legal obligations naturally carries consequences. De Kloe explains that violating the obligation to publish is considered an economic offence, meaning it is a criminal act under the Economic Offences Act. Theoretically, a company that fails to file its financial statements on time could face fines or even criminal prosecution. However, De Kloe notes that enforcement of disclosure violations is relatively rare.
"The real problem arises when a company that has failed to meet its disclosure obligations goes bankrupt. Lawmakers consider the timely publication of financial statements to be such a crucial duty that directors can be held liable for the deficit in bankruptcy if the disclosure requirement has not been met."
How does directors' liability work in bankruptcy?
If a company's bankruptcy is caused by mismanagement, its directors can be held liable for the financial shortfall. If bookkeeping is not in order or financial statements have not been published or were published too late, it is automatically assumed that the board has acted negligently. Additionally, this negligence is presumed to be a major cause of the bankruptcy. However, directors can still avoid liability by proving that another significant factor caused the bankruptcy. This could be an external factor, such as the COVID-19 pandemic or a fire, or an internal factor, such as a strategic investment decision that backfired.
De Kloe adds: "Directors might find ways to escape liability, but if the trustee sues them, they are already at a disadvantage if they failed to meet the obligation to publish." The question remains: Will Talpa continue to get away with this strategy, or will legal authorities eventually put an end to the construction?
- Assistant professor
- More information
You can access the Financieel Dagblad article via this link (in Dutch).
