Directors' liability for bankruptcy
Written by:
Hein Kernkamp
Insolvency or bankruptcy
When a Dutch company faces insolvency or bankruptcy, the directors of the company can face personal liability for the company's debts. Although a properly incorporated company is a separate legal person and as a general rule its creditors have no personal claim against the company's directors, there are many exceptions to this rule.
Netherlands Director's liability during bankruptcy
If a Dutch company is declared bankrupt, then the Dutch Civil Code grants the trustee in bankruptcy the means to hold the company's directors personally liable for the total shortfall in funds resulting from the bankruptcy.
Article 2: 248 paragraph 1 of the Dutch Civil Code stipulates that in the event of the bankruptcy of the company, every director is jointly and severally liable for the amount of the company's debts, if the board has obviously performed its duties improperly and it is plausible that this is an important cause of the bankruptcy.
Elsewhere on our website you can read about directors' liability in general, internal directors' liability, so the liability of a director vis-à-vis the company itself and external directors' liability, so the liability of a director vis-à-vis an individual creditor.
Directors' liability for bankruptcy in the Netherlands
In the 1980s, there was a lot of criticism of scam closed companies, which sprouted like mushrooms to quickly go bankrupt again. The legislator has taken measures against this. Article 2: 248 of the Dutch Civil Code forms part of the third anti-abuse law, which was introduced in 1987 to prevent this type of abuse of legal persons. The law makes it possible to hold directors liable for certain or all outstanding debts of the legal person.
The second paragraph of Article 2: 248 of the Dutch Civil Code gives the liquidator an important weapon. If a director has not complied with the proper administration and the timely filing of the annual accounts, it is established that there is manifestly improper management and it is suspected that this is an important cause of the bankruptcy.
Administrative duty of Netherlands directors
Pursuant to Section 2:10 of the Dutch Civil Code, the board of a legal person is required to maintain proper administration. The article formulates it as follows: "The board is obliged to keep records of the legal person's capital status and everything related to the activities of the legal person, to the requirements ensuing from these activities, and the associated books, to keep documents and other data carriers in such a way that the rights and obligations of the legal person can be known at all times."
The director who never kept books or who refuses to show these to the liquidator has a problem. He cannot submit any administration. So then there is a breach of corporate duties and this is regarded as clearly improper management. The director can be held accountable for this breach of duties.
Deposit of financial statements
The financial statements must be filed with the Trade Register no later than 12 months after the end of a financial year. If the filing is not made within 12 months after the end of the financial year, it is also established that there is manifestly improper management.
Refutation of evidence
If step 1 goes wrong for the director (improper management is involved), he can still refute the presumption of proof in Article 2: 248 of the Dutch Civil Code in step 2.
The presumption of proof can be refuted if the addressed director makes it plausible that other facts or circumstances than the apparently improper performance of duties have been an important cause of the bankruptcy. In addition, article 2: 248 paragraph 3 of the Dutch Civil Code stipulates that the director who proves that the manifestly improper performance of his duties is not due to him and that he has not been negligent is not liable.
Unlawful act
Directors can also be held liable for an unlawful act, such as in the event of unwillingness to make payments, entering into obligations while the driver knew or should have known that the obligations could not be met, or in the case of selective payment. See our article about this Directors' liability for unlawful conduct.
Guarantees and indemnities
Directors voluntarily assume responsibility for the company's debts when they give guarantees or indemnities to lenders, suppliers, landlords, and other creditors of the company.
Liability for unpaid taxes, social security premiums and pension premiums
The director or officer of a Dutch company that is no longer able to pay certain taxes or employee or pension contributions, should report this without delay to the Dutch Tax and Customs Administration, the Employee Insurance Agency (UWV, in Dutch) or the pension fund. Within two weeks of the payment deadline is considered to be in time. If the inability to pay has not been timely reported, the director runs the risk of being held personally liable and the burden of proof that the non payment is the result of manifestly improper management switches to the director. So then the director will have to prove that the non payment was the result of circumstances outside his sphere of control.
Consult a Netherlands lawyer
Directors and officers are wise to consult with a lawyer experienced in navigating bankruptcy and insolvency to plot the best course before, during, and after a company's insolvency. Our lawyers regularly advise and litigate on directors' liability in the event of bankruptcy of Dutch companies. Call us to make an appointment for a non-binding informative meeting, in which we can indicate what we can do for you. It is not without reason that our motto is: "Your problem, our concern."
More information?
Hein Kernkamp will gladly help you further.
