Overview of directors’ liability in the NetherlandsAuteur: Vincent van Oosteren - 03 April 2017
Are you a director who is facing a critical decision for the future of your company? Are you wondering how this decision could affect you personally? And what is your liability as a director in the event of a bankruptcy?
This article provides an overview of the rules regarding personal liability of directors of private limited companies (besloten vennootschap, B.V.) and public limited companies (naamloze vennootschap, N.V.) in the Netherlands.
It outlines various forms of directors’ liability and how to deal with this. It also provides a great reference that can be used if you are facing critical decisions in the future.
Directors’ personal liability towards the company
The liability set out in Article 9, Book 2, Dutch Civil Code (BW), only covers the managing directors’ personal liability towards the company itself. Pursuant to this Article, directors are required to fulfil their duties towards the company with due care and attention.
The director of a company can be personally liable if he does not comply with this obligation. The Dutch Supreme Court considers a director personally liable, if he is guilty of mismanagement. This could be the case if any other reasonably acting and experienced director would not have taken those actions in the same situation.
Examples of mismanagement are:
- Taking unsustainable financial risks;
- Diverting funds of the company for personal use; and
- Not properly insuring the company’s assets.
Directors’ personal liability towards creditors of the company
There are also circumstances in which individual creditors of the entity can hold the director liable for damages. Creditors could initiate a claim based on a wrongful act.
Examples of a wrongful act are:
- A director entering into a contract on behalf of the entity knowing (or reasonably should have known) that the company cannot comply with this contract;
- A director obstructing the payment of an outstanding amount and recovery options, to the detriment of a creditor.
Directors’ personal liability during bankruptcy
The director of a company can face claims filed by the bankruptcy trustee who represents the interest of the joint creditors.
In the event of a bankruptcy each director is jointly and severally liable to the bankrupt estate (joint creditors) for the amount of the company’s debts, if there is improper performance of his duties and it can be assumed that these actions are an important cause of the bankruptcy.
Liability of the director is presumed if the director has not complied with one of the following duties:
– The duty to keep proper accounts (Article 10, Book 2, Dutch Civil Code);
– The duty to publish the annual accounts in a timely manner(Article 394, Book 2, Dutch Civil Code); and
– The duty to comply with statutory obligations (Article 248, Book 2, Dutch Civil Code).
In these instances it is assumed that the improper performance of the director was an important cause of the bankruptcy. It is up to the director (and/or his lawyer) to prove that the bankruptcy was caused by external circumstances.
Liability of others
There are other people (other than the registered director) who can be deemed to have directed the company. They can be held liable in the same manner as the actual registered director of the company.
Tax liability directors
If the director has not reported the company’s inability to pay to the Dutch Tax Authorities, he can be held liable. This form of liability concerns unpaid taxes, such as income tax and national insurance contributions, and VAT. Once the tax authorities have declared the director liable for overdue tax imposed to the company, the director has the burden to prove that the tax debt was left unpaid for reasons that were caused by external circumstances.
You should seek legal advice if you are a director and you;
• are confronted with a claim from a creditor or bankruptcy trustee
• are being sued
• are faced with other critical decisions
Our team of lawyers at Fruytier Lawyers in Business are always ready to assist you regarding any directors’ liability.