Dutch corporate law is based on the principle that legal entities and natural persons have separate capital. This means that the natural person who is a director of a legal entity is in principle not liable with his private assets for debts of the legal entity. There are exceptions to this.
Dutch law recognizes three forms of directors' liability: directors' liability in bankruptcy, internal directors' liability and external directors' liability. This blog takes a closer look at these three forms of directors' liability with a special focus on external directors' liability.
Directors' liability under the Dutch Directors' Liability in Bankruptcy Act (WBF)
In the event of the bankruptcy of a B.V., each director is jointly and severally liable for the amount of the debts of the B.V. A condition for this liability is that the board has performed its duties "manifestly improperly" and it is plausible that the improper management is a major cause of the bankruptcy. In principle, it is up to the curator to establish facts and circumstances showing that the management board has manifestly performed its duties improperly. If this is proven, the curator only needs to prove that the board's failure was a major cause of the bankruptcy.
If proper accounting records are missing (Article 2:10 of the Dutch Civil Code) or if the annual accounts have been published late (Article 2:138 of the Dutch Civil Code and Article 2:248 of the Dutch Civil Code), it is suspected that the management board has manifestly improperly managed the company. In these cases, there is also a rebuttable presumption that the improper performance of duties was a major cause of the bankruptcy. Thus, the director can try to prove that the shortcoming was not a major cause of the bankruptcy.
Internal directors' liability
Internal directors' liability refers to the liability of a director towards the (organs of or members of the organs of) legal entity. The law requires a director to perform his duties properly (Article 2:9 of the Dutch Civil Code). If a director fails to perform his duties properly, he can be held liable under this article.
External directors' liability
External directors' liability refers to the liability of directors by, for example, external creditors. External directors' liability is a collective term for several categories of liability. The main category is liability arising from the tort action of Article 6:162 of the Dutch Civil Code. In two judgments, the Supreme Court has given shape to two forms of external directors' liability. First, in the New Holland Belgium /Oosterhof judgment. In this judgment, with reference to the Beklamel judgment, the Supreme Court formulated the so-called Beklamel standard. In short, the Beklamel standard implies that it is unlawful for a director to enter into an agreement with a third party if that agreement contains a payment obligation for the company and the director knows or should reasonably know that the company will not be able to fulfill this payment obligation. Consider the case where the director knows that bankruptcy is imminent and cannot be averted.
Secondly, in the Ontvanger / Roelofsen judgment, the Supreme Court gave further interpretation to the standard for personal liability of a director of a company vis-à-vis a creditor in a claim based on Article 6:162 of the Dutch Civil Code. This standard implies that the director is liable if he has caused his company not to pay the creditor and has no recourse. In other words: if the company is able to fulfill the payment obligation, but the director frustrates the payment. Then the director's conduct towards the creditor can be so careless that the director can be blamed personally.
The creditor must show that the director knew or reasonably ought to have known that the method used by the director would result in the entity defaulting on its payment obligation and not providing recourse for the resulting loss.
A recent judgment of the Court of Appeal of 's-Hertogenbosch for illustration. This case was about the possible personal liability of (indirect) directors of company A towards a creditor (creditor B) of company A. Creditor B's claim arose under a lease agreement and creditor B is the only creditor whose claim has not been satisfied, making filing for bankruptcy not an option. Company A is now a shell company and offers no recourse for creditor B's claim (of around € 460.000,-). Can the indirect directors be blamed personally for the unpaid claim of creditor B?
After all creditors apart from creditor B had been paid, assets worth more than € 200.000,- were sold for a symbolic sum of € 1,-. The Court of Appeal ruled that it must be clear to a director in such a situation that the remaining debtor is disadvantaged. A director in this situation has knowledge of the disadvantage and that is grounds for a personal serious accusation.
Want to know more?
Are you a director and are you being sued under directors' liability? Or are you a creditor and would you like to hold a director liable? Or do you have other corporate law issues? Please contact one of our lawyers.