The potential liabilities for directors of Dutch companies
If you are the director of a Dutch company, you are not only responsible for the success of the business, but also that the business meets all its legal and contractual obligations. As a director, this legal and contractual compliance is very important, as you can be held liable if the company does not meet its obligations. Before starting a business in The Netherlands, it’s important to understand your liabilities when you act as a director of a Dutch company.
There are two forms of directors' liability, internal and external:
Internal directors' liability: the legal person holds the director liable for the damage suffered.
External directors liability: a third party holds the director liable for damage suffered.
The law has a number of specific provisions regarding directors ‘and officers’:
Article 2: 9 of the Dutch Civil Code, the internal directors 'and officers’ to the legal person;
There are two requirements for internal liability:
There is improper management by the director.
The driver is seriously reproached for this.
If the director himself is also a legal person, article 2:11 of the Dutch Civil Code stipulates that the liability of such a director jointly and severally rests on anyone was a director at the time that the liability of the legal person arose.
A director’s liability works in principle to the ultimate natural person or persons with control.
Directors in bankruptcy
Article 2: 138 and 2: 248 of the Dutch Civil Code stipulates that if it turns out that there is clearly improper management, and that this is an important cause of the bankruptcy, then management is jointly and severally liable for the entire deficit in bankruptcy.
Director's liability is usually filled by the general provision of Article 6: 162 of the Dutch Civil Code (unlawful act).
The director’s 'and officers' liability can also continue to work until after the legal person has been cancelled. The liability also continues if the director has already resigned. However, the liability only relates to the period within which he was a director.
The statutory starting point for directors' liability is always Article 2: 248 of the Dutch Civil Code.
This article states that each individual director is jointly and severally liable in relation to the estate if:
There has been a "manifestly improper performance of duties" by the management.
It is plausible that this improper performance of duties is a major cause of the bankruptcy.
The case law on this point is numerous and many judgments have been reviewed. In 2016, the court ruled that the directors in the ‘horsemeat affair’ were liable on the basis of improper management. The incorrect reporting of the private use of company cars in the wage tax by an employment agency also led to the adoption of improper management.
In two situations, the legislator has determined that there is improper performance of duties:
In the event of a breach of the accounting obligation (Article 2:10 of the Dutch Civil Code) and/or the obligation to publish (Article 2: 394 of the Dutch Civil Code).
In those cases, improper performance of duties is established without further burden of proof on the liquidator. Furthermore, it is suspected that this improper performance of duties is a major cause of the bankruptcy. The burden of proof has now been reversed. It is now up to the director to disprove this suspicion.
The answer to the question whether the director can personally be blamed for a serious reproach just referred to depends on the nature and seriousness of the breach of standards and the other circumstances of the case.
If the director has entered into a commitment on behalf of the company and the claim of the creditor remains unpaid and proves to be unattainable, personal liability of the director may be assumed if the director knew, or reasonably ought to understand, that the company could not meet its obligations and not offer redress unless circumstances to be put forward by the director to justify the conclusion that he cannot be personally blamed for the disadvantage — see inter alia, Supreme Court, 6 October 1989, HR: 1989: AB9521, NJ 1990/286 (Beklamel) and Supreme Court, December 8, 2006, HR: 2006: AZ0758, NJ 2006/659 (Recipient) — when entering into the contract knew or should have understood that the creditors of the company, as a result of his actions, would suffer damage.
If you or any of your fellow directors make a decision with serious financial consequences for the company, you can be held responsible for it personally. The damage can be recovered from your private assets. With director’s liability insurance you can protect yourself, and your private assets, against this kind of liability. Normal insurance companies can provide this type of insurance.
This is highly recommended as you do not know the co-director and said director is abroad.
The following insurance companies offer director’s liability insurance:
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