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Director’s Liability under Dutch law

Director's liability under Dutch law

The Netherlands enforces strict rules regarding the personal liability of directors of limited companies (B.V.) and public limited companies (N.V.). This liability applies both before and after a company’s bankruptcy. Directors have a considerable amount of discretion in their decision-making. However, under Article 2:9 of the Dutch Civil Code, directors must perform their duties with due care and attention. If a director fails in this duty, they can be held personally liable for any damages caused to the company.

What Does Dutch Law Say About Director’s Liability?

Under Article 2:9 of the Dutch Civil Code, directors must uphold a duty of care towards the company. Failure to do so can lead to personal liability of a director of a Dutch company for any damage inflicted. This core principle ensures that directors act responsibly and prioritize the company’s interests.

This is an informal translation of the relevant statutory provision 2:9 in the Dutch Civil Code regarding the liability of company directors under Dutch law:

Article 2:9 Performance of tasks and liability of Directors
1. Every director owes a duty to the company to perform his duties properly. The duties of the managing director include all management tasks which are not assigned to one or more other managing directors by or under the law or the articles of association.

2. Each director is responsible for the general management of the company. He is fully liable for mismanagement unless he cannot be seriously blamed, also in view of the duties assigned to others, and he has not been negligent in taking measures to avert the consequences of mismanagement.

As director of a company in the Netherlands, you may enter into agreements with suppliers and customers. Under Dutch law, the basic principle here is that the company is liable for the consequences of its actions. In principle, therefore, as a director, you are not liable for actions on behalf of the company. However, facts and circumstances may arise that make it possible for you, as a director, to be held liable by the company itself or – in addition to the company – by third parties. Our Dutch corporate law firm in the Netherlands has a team of experienced Dutch company attorneys in the Netherlands who can assist regarding director’s liability under Dutch law.

Internal directors’ liability under Dutch law

According to Article 2:9 of the Dutch Civil Code, in order to be held liable for internal managerial negligence, there must be improper performance of duties by a manager /director towards the company itself. For this to be the case, the director must be seriously culpable. Whether the director has performed his or her duties improperly will depend on the facts and circumstances of the case. If it is assumed that this is the case, the director can be held liable by the company for damages suffered as a result of this improper performance of duties. If the board consists of several directors, then collective liability applies. This means that all directors are jointly liable for the improper performance of their duties.

External directors’ liability in the Netherlands

In the case of external directors’ liability, the director must have acted negligently towards third parties such as creditors, suppliers and shareholders. As with internal directors’ liability, the director must be seriously blamed before liability towards these third parties can be assumed (in Dutch: ‘ernstig verwijt’). If it is assumed that the director acted unlawfully towards third parties, the director can – in addition to the company – be held liable for the damage they suffer as a result. Unlike internal directors’ liability, the principle of collective liability does not apply here. Only the director who has acted in a seriously culpable manner can be held liable by third parties. External directors’ liability is assumed, for example, if the director enters into agreements on behalf of the company with third parties of which the director knows or should have known that the company will not be able to meet its obligations and will not be able to provide redress.

Director’s liability in case of bankruptcy in the Netherlands

In the event of bankruptcy in the Netherlands (insolvency in the Netherlands), each director may be liable for the debts of the company. This applies to improper performance of duties by the director, which is a major cause of the bankruptcy. If the board consists of several directors, the principle of collective liability also applies here. The board will be deemed to have improperly performed its duties if it has not met its obligation to keep proper books and records and to file the annual accounts in a timely manner. In that case, the improper performance of duties is presumed to be a major cause of the bankruptcy.

What Constitutes Serious Misconduct?

The Dutch Supreme Court (in Dutch: “Hoge Raad”) has set a standard for what constitutes serious misconduct (in Dutch: “persoonlijk ernstig verwijt”). Actions that no other reasonably acting and fully experienced director would take are considered serious misconduct. Examples include:

  • Engaging in fraudulent or illegal practices
  • Taking unsustainable financial risks
  • Diverting company funds for personal use
  • Not properly insuring company assets

If multiple directors are involved, they are jointly and severally liable unless they can prove their lack of knowledge or efforts to prevent the misconduct.

Civil Liability Towards Creditors

Directors can also be held liable by individual creditors under specific circumstances. This includes providing incorrect financial information or making commitments they knew the company could not fulfill.

Director’s Liability After Bankruptcy

Upon a company’s bankruptcy, Article 2:248 of the Dutch Civil Code allows the bankruptcy trustee to hold directors personally liable for any shortfall in funds. Directors are deemed to have performed their duties improperly if they fail to file accounts timely or maintain proper accounting practices. In such cases, the burden of proof shifts to the directors to prove their actions did not cause the bankruptcy.

Discharge of directors in Holland

It is possible for individual directors to escape liability. In order to do so, the director must prove that he or she is not at fault and that he or she has taken the necessary measures to avert the negative consequences. A high threshold applies for this dispensation of liability for directors. It is therefore important that you, as a director, seek assistance from a Dutch attorney if you are faced with liability.

Fiscal Liability of a Dutch director

Directors can also be personally liable for unpaid tax debts if they fail to report the company’s inability to pay taxes on time. This often occurs post-bankruptcy, when the company can no longer meet its tax obligations.

FAQs on Directors’ Liability in The Netherlands

What are the main responsibilities of directors under Dutch law?

Directors must perform their duties with due care and attention. They must avoid serious misconduct, such as fraud, taking unsustainable risks, or diverting company funds for personal use. Proper filing of company accounts and maintaining good accounting practices are also critical.

Can a director avoid liability if they disagree with the board’s decisions?

Yes, a director can avoid liability if they can prove they were unaware of the misconduct or did everything reasonably possible to prevent it. In some cases, this may require stepping down from their position if they disagree with the board’s decisions.

Directors in the Netherlands should seek immediate legal advice from a Dutch corporate attorney. Firms like MAAK Advocaten have the expertise to navigate these complex issues, offering insights and strategies to address claims effectively. Acting promptly can help mitigate potential liabilities.

Dutch attorneys in the Netherlands specialized in directors’ liability

If you have any questions or require legal assistance regarding a director’s liability in the Netherlands or corporate litigation in the Netherlands, please don’t hesitate to reach out to our knowledgeable and dedicated team at our Dutch law firm. We are committed to providing exceptional legal services and personalized attention to address your unique needs. As a director it is advisable to seek advice from time to time about your personal liability risks. Our law firm in Amsterdam has Dutch attorneys in the Netherlands specialized in director’s liability. Further to this, MAAK Advocaten has experienced Dutch attorneys in the field of Dutch company law and contract and liability law. These attorneys in Holland are specialists who can advise you as a director on how to prevent or limit liability risks and, if necessary, assist you in legal proceedings.

You can contact us through our website, via email, or by phone. Our friendly and professional staff will be more than happy to assist you and schedule a consultation with one of our expert attorneys in the Netherlands, for example a Dutch litigation attorney or contract lawyer in the Netherlands in Amsterdam. We look forward to the opportunity to help you navigate the complexities of the legal landscape and achieve the best possible outcomes for your case.

The content provided on this legal blog is intended for general informational purposes only and should not be construed as legal advice or a substitute for professional legal counsel. While we strive to ensure the accuracy and timeliness of the information presented, we cannot guarantee its completeness or applicability to your specific circumstances. We encourage you to consult with a qualified attorney for advice regarding your individual legal matters. The content on this blog may be subject to changes or updates without notice, and we disclaim any responsibility for any errors or omissions in the information provided.

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