Posted on: 08-03-2020

Directors' liability for unpaid debts

Written by:

Hein Kernkamp

Company goes bankrupt or cannot pay

You have done business with a legal person incorporated in the Netherlands and it appears that the company is unable to pay. Subsequently, the company goes bankrupt or the company is dissolved by means of a so called turbo liquidation. This article deals with whether you can hold the director personally liable in such a situation. In other articles on our site you can read about:

This article is about the liability of the director on the basis of article 6: 162 of the Dutch Civil Code, the unlawful act.

Directors' liability for unpaid debts

Directors' liability for unpaid debts

The main rule is that if a company takes on obligations, only the company is the party obliged to perform and that therefore only the company is liable for the resulting damage in case of breach of obligation. Nevertheless, under special circumstances, in addition to liability of that company, there is also room for liability of a director of the company.

The assumption of that liability requires that the director can be seriously blamed for the damage. This sets the bar higher than in the case of an ordinary unlawful act. The reason for this is that taking risks is part of doing business. The idea is that entrepreneurs should not feel too restrained to do business and to take risks. But it stops once.

Serious blame

The answer to the question whether the director can be seriously blamed depends on the nature and seriousness of the breach of standards and the other circumstances of the case (Netherlands Supreme Court 4 September 2014, (ECLI:NL:HR:2014:2627).

The Beklamel standard

A serious reproach can be made if the director knew or should reasonably have understood that the conduct of the company effected or permitted by him would result in the latter not fulfilling its obligations and also would not offer redress for the consequences thereof: Beklamel ECLI:NL:RBNHO:2019:3860 and Ontvanger / Roelofsen ECLI:NL:HR:2006:AZ0758. Such situations can occur shortly before the bankruptcy. There is a moment when it is clear that the company will not make it anymore. From that moment on, the director can incur liability if he nevertheless continues to bind the company to new obligations. Another situation in which the Beklamel standard applies is in cases where a company commences to operate without sufficient insight into the possibility of coverage of obligations. This occurs, for example, in situations where the plan was to apply for a subsidy, but where it appears that the company is not eligible for that subsidy at all.

Payment unwillingness

With regard to what is also referred to as payment unwillingness, the director himself has caused or allowed the legal person to fail to comply with its legal or contractual obligations. This occurs, for example, when entering into obligations of companies that are dependent on financing by group companies for the fulfillment of those obligations. Pursuant to case law, the person who has full control over a negligent company must demonstrate that the company is unable to pay. The director must therefore make it plausible that there is no payment unwillingness, otherwise the court will assume that this is the case and the claim will be granted.

Ordinary tort

Since the 'Spanish villa' case we also know the situation where someone is a director of a BV, but otherwise just acts unlawfully himself. A real estate agent had sold a villa that belonged to a project for which - while he knew this - no building permit would be issued and which later was actually demolished by the Spanish government. In such a case, the stricter standard for directors' liability does not apply. In the view of the Netherlands Supreme Court, this is a 'normal' wrongful act, to which the normal rules apply.

Burden of Proof

In principle, the normal rules on evidence apply in directors' liability cases, so the claimant must state and prove. Depending on the circumstances of the case, higher demands are made on the defense and there are even situations in which the judge can shift the burden of proof to the director, so then the director will have to prove that he was not guilty of the behavior complained of (Romme / Bakker: ECLI:NL:HR:1994: ZC1393). In court cases both plaintiffs and defendants often go wrong here. A party that states or substantiates insufficiently loses the case.

Discuss your case with us

Our lawyers regularly advise and litigate on directors' and officers' liability. Do you have a question? 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.

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