Directors' liability in bankruptcy and the anti-abuse legislation
After a bankruptcy, the trustee will also scrutinise the board. When are you personally liable as a director, and what can you do in advance?
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A bankruptcy does not automatically mean that the director is personally liable. On the contrary, the starting point is that the company itself is liable for its debts. Even so, a bankruptcy trustee (curator) will almost always examine whether the board properly performed its duties. Here is an overview of the main grounds for liability.
Liability towards the bankrupt estate
Under Dutch law, every director is jointly and severally liable to the estate for the deficit in the bankruptcy if the board has manifestly improperly performed its duties and it is plausible that this was an important cause of the bankruptcy. The test covers conduct in the three years preceding the bankruptcy. Manifestly improper is a demanding standard: it concerns conduct that no reasonably thinking director would have chosen in the same circumstances.
The accounts and the annual financial statements
If the board failed to comply with its bookkeeping obligations or did not publish the annual accounts on time, it is in principle established that the board improperly performed its duties, and it is presumed that this was an important cause of the bankruptcy. An insignificant failure is disregarded. This rule makes orderly bookkeeping and timely publication of the annual accounts one of the best forms of insurance a director can have.
Liability towards creditors
Individual creditors can also hold a director liable, for instance if he entered into obligations on behalf of the company while he knew, or should reasonably have understood, that the company would be unable to meet them. Another ground is frustrating payment to a creditor. The courts require a serious personal reproach in such cases.
Taxes and contributions: report in time
For tax debts and certain social security contributions, the law has a separate regime, the so-called anti-abuse legislation (misbruikwetgeving). If the company is unable to pay certain taxes or contributions, the board must report this inability to pay to the Dutch Tax Administration (Belastingdienst) in time, which for taxes means within two weeks of the payment deadline. If the notification is not made, or not made on time, the non-payment is presumed to be the director's fault. The director must then prove that he is not to blame, which is difficult in practice.
What can you do as a director?
Keep the accounts in order, publish the annual financial statements on time and record important decisions and the considerations behind them. Report an inability to pay as soon as it threatens. And in a financially difficult period, do not take on new obligations without a realistic view of whether they can be paid. Directors' and officers' liability insurance can soften the consequences, but it comes with its own conditions and exclusions.
Approached by the trustee?
Do not respond without advice. The trustee's investigation and the initial correspondence often determine how the case unfolds. Our lawyers (advocaten) assess your position, handle the discussions with the trustee and your insurer and, if necessary, represent you in the proceedings.
This article contains general information and does not constitute legal advice. Legislation and case law may change, and the outcome always depends on the circumstances of your situation. For advice on your matter, please get in touch with us.
