Audit committee composition VvE, what's the real deal?

Audit committee composition VvE, what's the real deal?

There is often discussion as to whether the audit committee of an Owners' Association (VvE) must consist of members of the VvE or whether third parties may also sit on it. This discussion is fueled by a ruling by the subdistrict court judge Amsterdam of November 5, 2013. The question, however, is whether that ruling is justified. VvE Lawyer Myrthe de Vries dove into the issue and explained the real situation regarding the composition of the VvE audit committee.

The law on VvE audit committee

Article 2:48(2) of the Civil Code reads as follows:  

“In the absence of a supervisory board and if an auditor's certificate as referred to in article 393, paragraph 1 is not submitted to the general meeting with respect to the truthfulness of the documents, the general meeting shall annually appoint a committee of at least two members who may not form part of the board. The committee shall examine the documents referred to in the second sentence of paragraph 1, and report its findings to the general meeting. The board shall be obliged to provide the committee with all information it requests for the purpose of its investigation, to show it the cash and values if it so desires, and to make the books, documents and other data carriers of the association available for inspection.” 

The phrase “at least two members who may not serve on the board” apparently raises questions. The word “members” causes ambiguity: does it mean members of the CoE or members of the audit committee? 

Amsterdam subdistrict court on composition of audit committee

The Amsterdam subdistrict court apparently also toyed with that question in the aforementioned ruling. Other than that ruling, there is no published case law on the matter. In the ruling in question, the subdistrict court ruled that Article 2:48(2) of the Civil Code provides:

“That the meeting of owners should annually appoint from among its members a (cash) committee of at least two members”

Since the audit committee of the VvE in question was not made up of members of the VvE and therefore had not been appointed by the meeting ‘from among its members,’ the conclusion was that no audit committee existed that met the legal requirements. Therefore, the decision overturned by which the financial statements had been approved.

Requirement ‘out of her midst’: a mistake or not? 

The question is how the subdistrict court arrived at this conclusion. The subdistrict court uses the words “from her midst”, but Article 2:48(2) of the Civil Code does not use these words. It only says that a audit committee must have at least two members and that these members may not also be part of the board. Nothing more and nothing less. Moreover, in my opinion, it is more plausible that the word ‘members’ refers to members of the audit committee, and not members of the VvE. The ruling of the Amsterdam subdistrict court therefore seems to be based on a misreading of the law.  

What do the VvE model regulations say about the composition of the audit committee?

The pre-2006 model regulations do not mention the audit committee, which means that in the case of BoEs in which the 1972, 1973, 1983 or 1992 model regulations were declared applicable, one must fall back on the law.  Then the above lecture applies. In model regulations 2006, article 58 paragraph 2 contains a provision similar to article 2:48 paragraph 2 BW. In this case, therefore, the same approach still applies. At least, only the word members is used and not (as in the ruling of the Amsterdam subdistrict court) members “from among its members”.  

In the 2017 Model Regulations, Article 63.2 states the following: 

“In the absence of a Supervisory Board, the Meeting - whether or not from among its members - shall annually appoint a Audit Committee consisting of at least two members. The membership of the audit committee is not compatible with the position of Director and that of Chairman.” 

Therefore, because the words ‘whether or not from among its members’ were used, it is true that it is explicitly stipulated that the audit committee can consist of members, but also of non-members of the VvE. 

The literature on composition of VvE audit committee

Previously, the Green Series contained the following text:

“In the absence of a statutory possibility to do so, it must be assumed that no non-members can be appointed to that committee.”

So that underlines precisely the conclusion of the Amsterdam subdistrict court. However, that text has since changed. Nowadays, the Green Series states the following:

“That committee - known in the hike as ‘audit committee’ - consists of at least two members, who may not be board members (paragraph 2, first sentence, in fine). Although a statutory possibility to do so is not given, it seems defensible that non-members can also be appointed to that committee.”  

While this is worded somewhat tentatively (possibly because it returns to an earlier position that was diametrically different), there is also nothing in the legislative history about the composition of the audit committee. Other sources in recent years also increasingly advocated the view that the audit committee may consist of members as well as non-members. Such as, for example, Asser/Rensen 2-III 2012/165:  

“The bylaws may stipulate that the members of the audit committee shall consist of members of the association. The law contains no restrictive rules in this regard.”

So why discuss the audit committee anyway?

The literature was previously divided on the composition of the audit committee. However, it is clear from most recent literature that it cannot have been the legislator's intention to allow only members of the VvE as members of the audit committee. With this, the 2013 ruling of the Subdistrict Court seems to be a legal lapse. Therefore, when looking at the ratio of Article 2:48(2) of the DCC, in my opinion it must also be concluded that the audit committee must consist of two (audit committee) members and that it does not matter whether these members are also members of the VvE.

Conclusion: VvE audit committee may include non-members

So it now seems widely accepted that the audit committee can also consist of persons who are not members of the VvE. This also seems logical when considering the course of business within a VvE. The management and supervisory board may also consist of non-members. If all these persons from these bodies do not have to be members of the VvE, it is incomprehensible to argue that the two members of the audit committee should be members of the VvE on the basis of Article 2:48(2) of the Civil Code, which does not even explicitly state this.

It can be argued that an external audit committee can also perform its task better than an audit committee composed of members of the VvE, because an external audit committee has no interest in approving or disapproving the financial statements. Thus, an external audit committee can give advice in a neutral manner. Moreover, there are few conceivable objections to the possibility of appointing non-members of the VvE to the audit committee, as both the law and the model regulations do not preclude this.

Do you have questions about the VvE audit committee?

Then contact the VvE lawyer at Lexys: