Under specific circumstances, and only when specific requirements are met, a director can be held liable as a private person for debts of a private limited liability company in the Netherlands.
I am a director of a Dutch private limited liability company (B.V.). Can I be held liable as a private person for debts of the company?
Yes, it is possible. Generally speaking, the Dutch courts show restraint in allowing claims against a director of a private limited liability company. The director should act properly, meaning that they should act as a reasonable person would do under similar circumstances. The director should also be aware of all legitimate interests in connection with the company. In other words, they will not be liable if, while managing the company’s affairs, they use their “common (business) sense”.
The biggest risk of director’s liability lies in the violation of obligations imposed by law, such as in a bankruptcy situation. These liabilities can be prevented by maintaining proper bookkeeping and through the timely publication of annual accounts. A director can also minimise the aforementioned risk by concluding an insurance for director’s personal liability claims.
What are the legal requirements?
A director must perform his or her duties with care, skill and diligence. The tasks of the director include the proper implementation of the provisions of law and the articles of association, as well as actions initiated by the shareholders. It is not sufficient for a director to perform his or her tasks to the best of their ability. He or she is, on the other hand, not expected to guarantee the success of their actions. Taking calculated business risks is allowed, even if risks materialise and/or cause losses as a result. Each individual action is judged on its own merits. There is no general, legal standard against which actions of a director are measured.
The standard applied by Dutch courts
The standard applied by the Dutch courts will be how a well-informed and diligent director could have acted or decided if they were in a similar position in a similar industry under similar circumstances. A breach of internal responsibilities does not necessarily give rise to personal liability, but indirectly such liability could arise. If there is an act or omission by a director that results in a breach of the duty of care, and if as a result thereof damages are incurred by the corporation, then the director can be held personally liable to compensate such damages.
The duties, responsibilities and possible personal liabilities of a director are described in several provisions in the Dutch Civil Code and other laws and may additionally be found in the provisions of the Articles of Association and/or a management contract concluded between the company and its director.
Internal and external liability
With regard to the liability of a director of a private limited liability company, one can distinguish internal liability (the role of the managing director within the company; damages suffered by the company itself) and external liability (the role of the managing director towards third parties; damage suffered by third-parties).
Internal directors’ liability
Internal liability of a director is connected with the statutory duty to fulfill his or her tasks properly, which means in any event in accordance with the law, the articles of association and possibly a management or labour contract. Regarding the duties of a director, Dutch law distinguishes between the duty of care and the duty of good faith.
In the Netherlands, the duty of care is expressed in terms of a duty to “properly perform” management tasks. The duty of good faith is part of the reasonableness or fairness requirement that regards relationships among the management board, shareholders and that general contract law imposes on parties to contracts.
The internal liability of a director is described in article 2:9 of the Dutch Civil Code.
External directors’ liability
Liability for wrongful acts
Directors are obliged to consider the interests of third parties, usually creditors. For a director to be held liable towards creditors, the director’s action must qualify as a “serious” reproach. Case law distinguishes two norms that, when violated, may give rise to a serious reproach:
- Where a director who pursues a new obligation on behalf of the company while he knows or should have known that (1) the company will not be able to meet that obligation in a timely manner (insufficient liquidity) and (2) does not provide sufficient recourse;
- Where a director frustrates the payment of an outstanding amount and the possibility of recovery to the prejudice of a creditor.
For both forms of wrongful acts, liability is presumed if the director could have reasonably foreseen the damage to the creditors concerned. Accordingly, directors are given the opportunity to refute the presumption of liability by demonstrating that, in the light of the circumstances, they could not in fact have reasonably foreseen the damage to the creditor.
Liability for wrongful acts is described in article 6:162 of the Dutch Civil Code.
Liability in bankruptcy
Directors may also face a claim filed by a bankruptcy trustee representing the interest of the creditors collectively based on article 2:248 of the Dutch Civil Code.
Relative to the aim of protecting the creditors, there must be a serious violation on the part of the director in order to adjudicate liability. After the court has declared the bankruptcy of the company, article 2:248 of the Dutch Civil Code applies. Under this article, personal liability of a director is presumed if the director has violated their:
- statutory obligations;
- duty to maintain proper bookkeeping (article 2:10 of the Dutch Civil Code);
- duty to disclose annual accounts in a timely manner (article 2:394 of the Dutch Civil Code).
If the director has not complied with one of the statutory obligations then a primary and irrefutable presumption exists that the director has improperly preformed his or her duties (article 2:248 of the Dutch Civil Code).
Secondly, there is a refutable presumption that the manifestly improper performance was an important cause of the bankruptcy (article 2:248 of the Dutch Civil Code). The burden of proof rests with the director to show that the bankruptcy was the result of external circumstances.
Do you have any questions about directors liability?
Please contact one of GMW lawyers’ specialists in corporate law.
This blog contains generalisations and should not be regarded as presenting a legal advice in any form. The aim of this blog is to provide the reader with a summary of the main legal issues which a director of a Dutch private limited liability company may encounter. As a result, this blog is not fully complete in all details. For advice about your specific situation, always consult with a lawyer.