Corporate Entities

Corporate Entities

when may courts disregard corporate structures to make owners personally liable?

Directors' liability

The Dutch limited liability company or 'B.V.' is the most selected legal form in the Netherlands. A B.V. is a corporate personality. Therefore the starting point is that the B.V. is only liable for its own debts and/or obligations (primary liability). Under certain circumstances, there is also room for liability of the director of the B.V. towards (internal liability) or next to the liability of the B.V. (external liability, also called secondary liability). In this article we will shortly stipulate the grounds of internal and external liability of the director(s) according to Dutch Law.

Internal liability

The internal liability is a liability of the director to the company itself. This liability is based on article 2:9 Dutch Civil Code (DCC). Each director is obliged to perform his task properly. In case a director does not perform his tasks properly, he can be held liable for his actions or negligence. For liability under article 2:9 DCC it must be possible to attribute serious blame to the director.

If there is more then one director, all the directors are jointly and severally liable. There are circumstances in which a director can exculpate himself.

External directors' liability

External directors' liability concerns the liability of directors to third parties. In the Netherlands, we distinguish between external liability of a director in case of bankruptcy (article 2:248 DCC) or based on tort (6:162 BW).

In case of bankruptcy, the directors can be held jointly and severally liable to the estate of the company. The trustee in bankruptcy can claim a shortage in the estate from the directors, if the directors have manifestly performed their duties improperly and if these actions are an important cause of the bankruptcy. The DCC automatically assumes that the directors have performed their duties improperly in the following situations (if they occur in a period of three years before the date of insolvency):

  • when the directors have not filed the company‚Äôs accounts with the Dutch chamber of commerce within 12 months of the end of the financial year;
  • when the 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.

This assumption is refutable.

In order to assume liability of a director in his capacity of director (and outside bankruptcy) based on tort (article 6:162 DCC), it is required that the director is guilty of personal serious misconduct. If a director (i) has entered into an agreement on behalf of the B.V. when he knew or reasonably should have known that the B.V. would not be able to meet its obligations, based on the agreement, or (ii) when he has accomplished or allowed that the B.V. is in default with its legal or contractual obligations, it can be assumed that a director is guilty of serious personal misconduct, based on manifestly improper management.

Conclusion

There are many more forms of external liability then mentioned here. If a director of an B.V. is facing liability we also need to first look at the alleged ground of liability. Is it internal or external liability? Depending on the outcome, we know to refute this liability. If you want to know more about this topic or if in a case your client faces director's liability or your client wants to hold a director liable in the Netherlands, please feel free to contact us at anytime.

By Sanne Koster & Janneke Braat

Marxman Advocaten