Netherlands Law Firm Minerva Advocaten

Liability of Directors

For further information you can contact Hein Kernkamp at kernkamp@minerva-advocaten.nl.

This article outlines the personal liability of managing directors of limited companies (B.V.’s) and public limited companies (N.V.’s) in the Netherlands.

Civil liability

If a managing director acts in a manner that may later turns out to be detrimental to the company, this does not automatically lead to personal liability. Taking calculated risks is, after all, part of running a business and being an entrepreneur, so the law allows managing directors a certain amount of discretion in fulfilling their responsibilities as a managing (or “statutory”) director.

Article 2:9 of the Dutch Civil Code requires managing directors to fulfil their duties towards the legal entity with due care and attention. Should they fail this duty of care, then the managing directors are personally liable for any damage caused to the company as a result thereof. The Dutch supreme court has ruled that such is the case if the directors have acted in a manner that constitutes serious misconduct. The Supreme Court holds that if the actions of the managing directors held liable would not have been taken by any other reasonably acting and experienced managing director in their stead, then this constitutes serious misconduct.

Examples of circumstances wherein managing directors have been held liable by their company are:

  • Diverting the company’s funds for personal use;
  • Fraudulent or illegal practices;
  • Taking large and unsecured financial risks.

Article 2:9 only covers the managing directors’ personal liability towards the company itself. In certain circumstances, however, creditors of the company can also hold the managing directors separately liable for damage resulting form actions taken during their directorship, such as providing incorrect information or making promises on behalf of the company that they knew the company could not fulfil.

Liability during bankruptcy

Should a company be declared bankrupt, then the Ditch Civil Code provides the trustee in bankruptcy with the means to hold the company managing directors personally liable on the following grounds.

The law states that on the bankruptcy of a company limited by shares, each managing director shall be jointly and severally liable to the bankruptcy estate for the amount of the company’s debts that cannot be satisfied out of the liquidation of its assets if the management has manifestly performed its duties improperly and it may be assumed that these actions constituted an important cause of the bankruptcy.

The law automatically holds that the managing directors have performed their duties improperly in the following circumstances:

  • The management has not filed the company’s accounts within 13 months of the end of the financial year;
  • The books and accounts of the company have not been kept in accordance with good accounting practices and do not provide a true insight into the financial position of the company.

In such cases the burden of proof is shifted to the managing directors, who must then prove that their failure to file the accounts or administrate properly did not constitute an important cause of the bankruptcy. In such cases it is extremely difficult for the managing directors to avoid liability.

If the trustee is of the opinion that there are other grounds for personal liability the trustee can also hold the directors liable, though it is then up to the trustee to prove that there has been serious misconduct leading to bankruptcy. Should the trustee believe that persons who are not officially directors, but can be deemed to have run the company, are largely responsible for the bankruptcy, Dutch law provides that the trustee may hold these persons liable in the same manner as the actual company directors.

Fiscal liability

Directors of a Dutch company, such as a B.V. or an N.V., can also be held personally liable for unpaid tax debts of the company, in such cases where the directors have not reported the inability of the company to pay to the tax authorities. This form of liability regards taxes such as wage withholding tax and VAT (“BTW“), owed by the company to the Dutch Treasury. Once the tax authorities have made a director liable for overdue taxes imposed on company, it is up to the director to prove that the tax debt was left unpaid for reasons not attributable to him. Fiscal liability often occurs after bankruptcy, as the company is then no longer able to pay its own tax debts.

Further information

In most cases liability of legal entities appointed as directors also leads to liability of the persons behind that legal entity, even if both are foreign companies or persons living outside of The Netherlands. Should you be confronted with claims by third parties or a trustee in bankruptcy relating to the directorship of a company, it is important to seek legal advise at an early stage. Should you be considering liquidating a company in the Netherlands, it is of the utmost importance to identify any possible grounds for liability and to act accordingly before actual liquidation

Our firm has many years of experience in advising on matters regarding bankruptcies and civil liability of directors. We have also have inside expertise as court appointed liquidators at the court of Rotterdam, and can give you an immediate insight into the possible actions of your creditors or a trustee in case of bankruptcy.

Please feel free to contact our Company and Corporate Law contact person with any questions you may have.

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