Director and Supervisory Board Liability in the Netherlands

Why is director liability urgent for your organization?

Director liability affects all Dutch companies – from multinationals to family businesses. Recently, proceedings against directors increased by 23% according to the Dutch Association for Jurisprudence. This legal development directly impacts your daily decision-making. Therefore, we clarify the current status of director and supervisory board liability under Dutch law.

Improper Management under Dutch Law: Article 2:9 Civil Code – When Are You Liable as Director?

What constitutes proper management in the Netherlands?

Article 2:9 of the Dutch Civil Code (BW) establishes a fundamental principle: every director must perform their duties properly toward the legal entity. When performing your duties, you focus on the interests of your company and its connected enterprise. Dutch legislation expects you to be competent for your position and perform diligently. Consequently, you assess beforehand whether you possess the required capabilities for your directorship. A claim of incompetence offers no defense under Netherlands law.

How Does Collective Responsibility Work in the Dutch Jurisdiction?

Management functions collegially according to Dutch corporate law. The board bears collective responsibility for general affairs, including strategic and financial policy. Therefore, directors are jointly and severally liable for damage the legal entity suffers from improper management.

When does your legal entity hold you liable for improper management?

Article 2:9 paragraph 2 BW enables liability claims. In practice, this occurs exclusively under exceptional circumstances. The board represents the legal entity itself. Consequently, liability claims usually require a changing board composition. Bankruptcy also creates opportunities: the trustee then holds you liable based on improper management.

The legal entity or trustee must assert and prove improper management exists. Specifically, this means: no reasonably thinking director would have acted similarly under the same circumstances. An error alone does not constitute improper management according to the Supreme Court.

Practice Example: Conflict of Interest at HDI

Insurer HDI held two former directors liable in 2017. HDI claimed their actions regarding a reinsurance structure caused damage. The Court of Appeal in The Hague considered conflict of interest and concealed conduct in its assessment. The court ruled: the directors face a serious reproach of improper management.

Serious Reproach: High Threshold Prevents Defensive Management

Which circumstances determine whether you face serious reproach in Dutch law?

Article 2:9 BW contains a conduct standard – proper management – and a liability standard through ‘serious reproach’. The judge considers all relevant circumstances:

• Nature of your business activities
• Generally arising risks
• Division of tasks within the board
• Applicable management guidelines
• Available and required information for your decision
• Expected insight and diligence for your position

The legal entity (trustee) must assert and prove serious culpability. Moreover, acting against statutory provisions weighs heavily. These provisions aim to protect the legal entity according to established Supreme Court jurisprudence since 2002. The same applies to statutory protection provisions, for example rules regarding conflicting interests.

Note: New Case Law on Conflicting Interests under Netherlands Law

The Enterprise Chamber formulated three judgments between 2017-2018 that shed new light on conflicting interests. This development requires extra alertness in situations with possible conflicts of interest within your organization. Lawyers in Amsterdam see increasing risks for directors here.

How Do You Avoid Individual Liability in the Netherlands?

Can an individual director prevent liability?

Collegiality means: establishing improper management and serious culpability affects all directors. Every director is jointly and severally liable for the entire damage. However, the law provides room for exculpation.

Your director duties include all tasks not assigned to other directors. You bear minimum responsibility for:

• General affairs
• Strategic policy
• Financial policy
• Supervision of co-directors
• Compliance with essential legislation
• Risk management and organizational identity

A task division does not negate joint and several liability under Dutch law.

When does your exculpation succeed under Netherlands law?

You exculpate yourself by demonstrating that no serious reproach applies to you. Specifically, you prove that:

1. The improper management did not concern your tasks
2. You were not negligent in averting consequences

Regarding general affairs, you cannot exculpate through task division. Therefore, you intervene timely when improper management threatens through negligent co-directors, even for tasks assigned to them. In principle, you may rely on statements from co-directors. Were you reasonably unaware of improper management? Then you demonstrate this yourself for successful exculpation.

Important: Supervisory Duty Prevents External Liability

Insufficient supervision of co-directors can bring liability toward third parties via Article 6:162 BW (tort). More on this later.

Supervisory Board Members: When Do They Face Improper Supervision?

Does Article 2:9 BW also apply to supervisory board members?

Articles 2:149 and 2:259 BW extend Article 2:9 BW to supervisory board members of public and private limited companies. Collective responsibility and joint and several liability also apply to them. The standard applies differently due to their divergent role.

The supervisory board supervises general affairs and management policy. Additionally, the board advises management. When performing duties, supervisory board members also focus on the company’s interests and connected enterprise according to Articles 2:140 paragraph 2 and 2:250 paragraph 2 BW.

How does a supervisory board member exculpate themselves under Netherlands law?

Collegiality also applies to supervisory board members. They are collectively responsible and jointly and severally liable for seriously culpable improper supervision. With collective improper supervision, an individual supervisory board member exculpates by proving that:

1. The improper performance of duties is not attributable to them
2. They face no serious reproach
3. They were not negligent in averting consequences

Liability in Bankruptcy: Articles 2:138 (NV) and 2:248 (BV) BW

When does the trustee hold you liable for the estate deficit under Dutch law?

Articles 2:138 and 2:248 BW provide trustees with a specific liability ground for directors of public companies, private companies, foundations, and associations with corporate tax obligations. Dutch legislation introduced these provisions in the 1980s after increased abuse of legal entities. At that time, bankruptcies and unpaid debts increased significantly. The legislator intended two objectives: prevention and recovery of consequences for creditors.

This liability requires that:

1. The board manifestly performed its duties improperly
2. This is an important cause of the bankruptcy

When these requirements are met, every director is jointly and severally liable for the entire estate deficit. The amount to be compensated therefore does not directly link to damage from own actions or those of co-directors.

What Does Manifestly Improper Performance Mean in the Netherlands?

During which period must the manifestly improper management have occurred?

The manifestly improper performance of duties must occur in the three years preceding bankruptcy. Individual reproach to different directors is not required according to Dutch jurisprudence. The trustee also need not demonstrate which directors contributed to the manifestly improper performance of duties.

The judge assesses based on concrete circumstances. The test reads: would no reasonably thinking director have acted similarly under the same circumstances? The Supreme Court formulated this standard in the Panmo judgment of 2001.

Important Cause: Causal Connection with Bankruptcy

The manifestly improper performance of duties need not be the sole cause of bankruptcy. However, it must have contributed importantly to the bankruptcy. In principle, the trustee asserts and proves that the requirements for joint and several liability are met.

Far-Reaching Evidentiary Presumptions: The Trustee Receives Legal Support

Which evidentiary presumptions strengthen the trustee’s position under Netherlands law?

In practice, trustees frequently invoke Articles 2:138/2:248 BW thanks to powerful evidentiary presumptions. Paragraph 2 links these presumptions to two crucial statutory obligations:

1. Administration duty (Article 2:10 BW)
2. Annual accounts publication duty (Article 2:394 BW)

Does the board fail to comply with these obligations? Then the following apply:

i. Irrefutable presumption: the board manifestly performed its duties improperly

ii. Refutable presumption: the improper performance of duties is an important cause of bankruptcy

The burden of proof for non-compliance rests with the trustee. However, is accounting or deposited annual accounts absent? Then the addressed director must often demonstrate that such documents are present.

Annual Accounts Publication: Deadlines and Criminal Liability

Within what timeframe must you publish the annual accounts in the Netherlands?

Several years ago, the Dutch legislator changed the deadlines for preparing and publishing annual accounts. For public and private limited companies, the board has maximum twelve months to prepare, approve, and publish the annual accounts.

The preparation deadline is five months after the end of the financial year. The general meeting can extend this deadline by five months under circumstances according to Articles 2:201 paragraph 1 and 2:210 paragraph 1 BW. Subsequently, the general meeting approves the annual accounts within two months (Article 2:394 paragraphs 1 and 2 BW). Finally, the board publishes the annual accounts at the Chamber of Commerce.

Note: Late Publication Constitutes Criminal Offense

Late publication activates the evidentiary presumption and constitutes a criminal offense under the Economic Offenses Act. This dual sanction underscores the importance of timely compliance for directors in Amsterdam and throughout the Netherlands.

Minor Default: A Safety Valve

When do you avoid the evidentiary presumption via minor default under Dutch law?

Sometimes you demonstrate a minor default exists. This applies when non-compliance under the circumstances does not indicate improper performance of duties. For example, with an acceptable explanation for the default.

Practice Example from Case Law

The Supreme Court’s 2013 Verify judgment illustrates this. Exceeding the publication deadline by several days may constitute minor default. The burden of assertion and proof rest with the director according to established case law since 2006.

Administration Duty: Recent Clarification by Supreme Court

What exactly does Article 2:10 BW require from your administration in the Netherlands?

Article 2:10 BW determines: the board maintains administration of the financial position and activities according to requirements arising therefrom. You preserve this administration and associated data carriers such that rights and obligations of the legal entity can be known at all times.

You see: an open and not excessively clear standard. Therefore, the Supreme Court nuanced earlier case law regarding this standard several years ago.

Which test has applied since 2014 for proper administration under Dutch law?

The test does not limit itself merely to speed of insight into debtor and creditor positions plus liquidity. This was derived from the 1993 Brens/Sarper judgment. The 2014 FSM Europe judgment corrected this thinking.

Article 2:10 BW remains central according to the Supreme Court. For assessing whether accounting complies, other elements may also be relevant besides debtors, creditors, and liquidity. How rights and obligations can be known at all times depends partly on the nature and scope of your enterprise. This specification provides lawyers in Amsterdam with better guidance when advising on administration obligations.

Background of Evidentiary Presumptions: Legislator Sets High Standards

The legislator considers proper accounting and timely published annual accounts as the most essential elements of proper performance of duties according to parliamentary history from 2008/09. A deficiency herein indicates unreliable and non-serious entrepreneurship. This alone constitutes a shortcoming of the board in the Dutch legislator’s view.

How Do Directors Refute the Second Presumption in the Netherlands?

How do directors refute the causal presumption?

The second presumption – improper performance of duties as important bankruptcy cause – is refutable. You make plausible that circumstances other than improper performance of duties were an important cause of bankruptcy. Do directors refute the evidentiary presumption from paragraph 2? Then the trustee must again make plausible that manifestly improper performance of duties was also an important cause.

The trustee may reproach you for failing to prevent those other causes. In response, you demonstrate that this failure does not constitute improper performance of duties according to the Supreme Court’s 2007 Blue Tomato judgment. Various courts of appeal repeated this from 2015 onward.

Practical Tip for Directors

Are you interested in the precise elaboration of the second evidentiary presumption? Then read the annotation to the Supreme Court’s 2016 ‘The Law’ judgment. This analysis offers legal advice regarding burden of proof distribution.

Extension of Liability: De Facto Policymakers and Supervisory Board Members

Does this liability also affect non-appointed directors under Dutch law?

This liability ground applies not only to formally appointed directors. Other persons who (co-)determined policy as if they were directors also fall under it according to paragraph 7. This is called a de facto policymaker in Dutch corporate law.

When are supervisory board members liable in bankruptcy under Netherlands law?

Supervisory board members can also be liable for manifestly improper performance of duties in the three years preceding bankruptcy. This requires that improper performance of duties is plausibly an important cause of bankruptcy according to paragraph 7.

The supervisory board itself is not obliged to maintain administration and publish annual accounts with regard to evidentiary presumptions. This also does not apply when the board falls short in complying with these obligations according to the 1996 Bodam Jachtservice judgment. The supervisory board must ensure that the board complies with its obligations.

Exculpation and Mitigation: Escape Routes for Directors

How do you exculpate yourself under Articles 2:138/2:248 BW in the Netherlands?

A director may possibly exculpate themselves and thus avoid liability. For this, the director proves that:

1. They face no reproach of manifestly improper management
2. They were not negligent in averting consequences

This constitutes the exception to joint and several liability of all directors according to paragraph 3.

Can the judge mitigate your liability under Dutch law?

The judge can mitigate directors’ liability for various reasons according to paragraph 4:

• Nature and seriousness of improper management
• Other causes of bankruptcy
• (Short) period of directorship

This mitigation authority creates flexibility for proportional outcomes per individual case in Dutch legal practice.

Liability Toward Third Parties: Article 6:162 BW (Tort)

When does a third party hold you directly liable as director in the Netherlands?

Under certain circumstances, a third party – for example, a contractual party – has a direct claim against a director. The director then does not hide behind the legal entity. The basis for this claim is tort according to Article 6:162 BW.

The director generally acts tortiously toward a third party in their capacity only when they face a personally serious reproach. Note: confusion can arise when a creditor addresses a director not as director but as professional advisor, for example. The serious reproach standard then lacks application according to the 2012 Spanish Villa judgment. For liability, only the normal tort rules apply in that case.

Serious Reproach: High Threshold Protects Entrepreneurship

Why does the law also maintain a high liability threshold here under Dutch law?

Also with this ground, the requirement of serious reproach aims to erect a high threshold. This prevents directors from having their actions determined by defensive considerations. The justification reads: first and foremost, the legal entity contracts/acts with/toward the third party according to Dutch law.

What makes your actions personally seriously culpable in the Netherlands?

Specifically, the standard requires: the director acts toward the creditor under circumstances so carelessly that they face personal serious reproach. This generally applies when the director knows or reasonably should understand that their effectuated or permitted course of action by the legal entity results in non-performance of obligations and offers no recourse for arising damage. The judge considers nature and seriousness of norm violations and other circumstances in assessment according to the 1989 Beklamel judgment.

Three Common Tort Situations

Situation 1: Assuming Obligations Without Recourse Possibility

A director acts tortiously by assuming an obligation on behalf of the legal entity while knowing or reasonably should have understood that:

• The legal entity cannot fulfill that obligation
• The legal entity offers no recourse for damage

The Supreme Court formulated this in the 2006 Tax Receiver/Roelofsen judgment.

Situation 2: Non-Performance of Previously Assumed Obligations

A director acts tortiously regarding previously assumed obligations by effectuating or permitting the legal entity’s non-performance. Here too: they knew or reasonably should have understood that this course of action would result in:

• The legal entity failing to fulfill its obligations
• No recourse being offered for arising damage

This standard also comes from the 2006 Tax Receiver/Roelofsen judgment.

Situation 3: Selective Payment of Creditors

A director can act tortiously by selectively paying creditors. In many cases, directors are free to determine based on their own judgment which creditors the legal entity satisfies. However, does non-payment stem from unwillingness to pay by the director? Then personal liability arises according to the 2010 Zandvliet/ING judgment.

Note: Group Creditors Versus External Creditors Under Dutch Law

This may differ when you choose to satisfy creditors within your group with priority over creditors not belonging to the group. Generally legally recognized reasons for priority are required for such selective payments according to the 1998 Coral/Stalt judgment.

Trust Directors: No Relaxed Standard

The serious reproach standard also applies to trust directors when assessing whether they improperly performed their duties. Trust directors must also know or should have understood that creditor detriment would result according to the 2011 Tax Receiver/Intertrust judgment.

No Joint and Several Liability: Individual Assessment Per Director

Does the burden of proof for tort differ from that for improper management under Netherlands law?

Liability for tort via Article 6:162 BW does not lead to joint and several liability of different directors. The plaintiff must assert and if necessary prove per director that Article 6:162 BW requirements are met.

Practice Example: TMF Judgment Clarifies Individual Test

In early 2018, the Supreme Court established beyond doubt that – even when the legal entity fails to comply with statutory provisions – for every director separately an attributable tortious act toward the plaintiff must be established. This concerned securities law provisions regarding a license and prospectus. This individual approach contrasts with collective liability under Article 2:9 BW.

More Clarity on Piercing the Corporate Veil with Director-Entities: Article 2:11 BW

Can a legal entity be director of another legal entity in the Netherlands?

In the Netherlands, a legal entity can be director of a legal entity. This is not an international given. In many states or countries, this is impossible – including Delaware, Canada, Denmark, Estonia, Finland, Ireland, Austria, Poland, and Sweden. This relates to tasks, responsibilities, and liabilities connected to management.

Why did the legislator introduce Article 2:11 BW?

The Dutch legislator therefore introduced Article 2:11 BW: the liability of a legal entity-director also rests jointly and severally on everyone who is director of that legal entity-director. The director of the liable legal entity can in turn be a legal entity, and so forth. The rule sets no maximum on the number of (Dutch) legal entities. A natural person therefore does not hide behind the legal personality of the director-entity according to Dutch law.

Five Supreme Court Judgments: Case Law Development Since 2000

Over the past two decades, the Supreme Court issued five judgments on liability via Article 2:11 BW. This case law clarified the scope of this piercing provision.

Important: No Application to De Facto Policymaker

Application of the article is not possible to the de facto policymaker of the director-entity according to the 2000 Montedison judgment. However, application is possible to the director-entity whom the trustee held liable as de facto policymaker according to the 2008 Lammers/Aerts judgment.

Cross-Border Situations: Limited Operation Under Dutch Law

Application of the article does not extend to directors of a legal entity-director not statutorily established in the Netherlands. Suppose: a Belgian NV is director of a Dutch legal entity. Then Article 2:11 BW does not pierce (also) toward the Belgian NV’s directors according to the D Group Europe (2011) and My Guide (2013) judgments.

Kampschöer/Le Roux: Piercing with Tort

Does Article 2:11 BW also apply with liability based on tort in the Netherlands?

The fifth and most recent judgment – issued in 2017 – combines this piercing article with the tort basis (Article 6:162 BW). The judgment clarifies three crucial questions:

Question 1: Does Article 2:11 BW apply when the director-entity is addressed based on Article 6:162 BW?

Answer: Yes.

Question 2: Must the creditor also demonstrate a personally serious reproach regarding the director of the director-entity?

Answer: No.

Question 3: How does the director of the director-entity prevent liability (after all)?

Answer: The director of the director-entity asserts and proves that they personally cannot be seriously reproached for the director-entity’s conduct.

Consequences for Legal Practice in Amsterdam and the Netherlands

Clear language with which practice can reasonably work according to lawyers specializing in contract law. The desirability of these answers remains a discussion point. A consequence can namely be that a creditor has a better evidentiary position when holding members of a multi-person board of a director-entity liable than when directly addressing appointed board members.

In the first case, making a serious reproach regarding the director-entity plausible suffices. In the second case, the creditor must make a serious reproach plausible regarding every individual director. Collectivity does not apply with liability based on tort as explained earlier.

Advice: Review Your Group Structure

Do one or more director-entities sit in your group structure? Then with regard to these developments, it is advisable to examine your structure and decision-making practices extra carefully.

Other Developments Affecting Your Management Practice

Which legal developments are relevant for your organization depends partly on the sector in which you operate. We signal two developments impacting many different organization types. Therefore, these are relevant for their directors.

Expected Implementation of Proposed Law on Management and Supervision of Legal Entities

What does this bill aim to clarify under Dutch law?

This bill must clarify the regulation for management and supervision of associations, cooperatives, mutual insurance societies, and foundations. The proposal is still under consideration by the House of Representatives. After the proposal had stalled for over two years, additional parliamentary documents appeared from late 2018 onward.

Current Main Lines of the Bill

In its current form, the bill provides a statutory basis for a supervisory board at associations and foundations and for a monistic management model at all legal entities. When implementing the Management and Supervision Act in 2013, the legislator introduced such statutory basis only for public and private limited companies.

Furthermore, the current bill creates more clarity for associations, cooperatives, mutual insurance societies, and foundations regarding:

1. Starting Points for Directors and Supervisory Board Members

The proposal specifically incorporates in law that they must focus on the legal entity’s interests and connected organization when performing duties.

2. Position with Conflicting Interest

The proposal introduces a regulation comparable to the public/private limited company regulation for all legal entities. For foundations, a requirement comes to record decision-making with conflicting interest in writing.

3. Liability Rules Under Netherlands Law

The proposal provides broader application scope for director liability in bankruptcy – not only when the legal entity is subject to corporate tax.

GDPR: General Data Protection Regulation Since May 25, 2018

Which organizations fall under the GDPR in the Netherlands?

The GDPR’s entry into force on May 25, 2018, raised considerable attention. The GDPR applies to organizations processing personal data of European Union citizens. Organizations from outside the European Union can also fall under the GDPR’s operation.

The Netherlands additionally established a national regulation: the Implementation Act General Data Protection Regulation according to Parliamentary Documents from 2017/18.

Liability of Legal Entity and Directors Under GDPR

When are you liable for GDPR violations under Dutch law?

Article 82 of the GDPR determines: anyone suffering material or immaterial damage as a result of a GDPR violation has a right to compensation from the controller or processor. A controller or processor is exempted from liability when proving they are in no way responsible for the damage-causing fact. Multiple responsible parties or processors can be jointly and severally liable.

When are you personally liable as director?

For the legal entity’s liability toward a third party, a GDPR violation must exist. Non-compliance with the GDPR is a statutory duty violation and therefore also qualifies based on Article 6:162 BW as the legal entity’s tortious act.

However, for a director’s liability, the director’s own tortious act must exist. In most cases, the serious reproach standard applies in that context as explained earlier.

Data Breach Reporting Obligation: Documentation Required

Which obligations apply with data breaches in the Netherlands?

A much-discussed obligation in data protection is the data breach reporting obligation. The reporting obligation has existed under Dutch law since 2016. The GDPR’s implementation sharpened this through stricter requirements for data breach registration.

Important Change: Organizations Must Document All Data Breaches

With this documentation, the Personal Data Authority verifies whether organizations comply with the data breach reporting obligation. In certain cases, the organization reports the data breach to the Personal Data Authority. Sometimes notification must even go to persons whose data were leaked according to the GDPR. Such notification enables them to take measures themselves and thus limit further damage.

Personal Data Authority’s Fine Authority: New Risks Under Dutch Law

To whom can the Personal Data Authority impose fines?

One authority the Personal Data Authority can exercise to enforce compliance is imposing fines. The Personal Data Authority can impose fines on the organization/legal entity or directly on the director(s) according to Parliamentary Documents from 2014/15.

Can the legal entity recover the fine from directors?

The legal entity can try to recover a fine imposed on it from its directors due to improper management (Article 2:9 BW). This improper management lies, for example, in – despite knowledge of a data breach – not acting in conformity with the GDPR. A reasonably thinking director would have acted in conformity with the GDPR in such situations.

Comparison with Competition Law: Precedents at ACM

The fine authority initially came to the CBP (the Personal Data Authority’s predecessor) under the Personal Data Protection Act. The authority has not been used to date. We do not exclude that this changes in the near future.

For example, in competition law we see that the Consumer and Market Authority has already imposed various fines on natural persons. This can apply both to the director who gave orders and to the actual leader according to decisions from 2015 onward. The Consumer and Market Authority does not limit itself to formal directors.

Indemnification and Insurance: Review Relevance

Does your indemnification protect against new risks under Dutch law?

It is not uncommon for the legal entity to provide a director with indemnification for potential damage they incur through exercising their director duties. In many cases, the legal entity insures personal risks in director liability for the benefit of directors and others facing comparable risks.

Advice: Review Policy Conditions for Relevance

Due to recent developments in administrative fines, it is advisable to verify whether the relevant conditions remain sufficiently current. Lawyers specializing in contract law in Amsterdam regularly advise organizations on this matter.

Conclusion: Continued Vigilance Required

The various general regulations regarding director and supervisory board liability aim to erect a considerable threshold for personal liability. In an expanding regulatory landscape, that is a great good according to legal advice.

Nevertheless, directors and supervisory board members do well to stay informed of the responsibilities and risks connected to their position. Recent developments around director-entities, the Proposed Law on Management and Supervision of Legal Entities, and the GDPR illustrate this legal area’s dynamics.

Practical Recommendation for Directors

Consider speaking regularly with your lawyer about this topic and specific legislation that may be relevant. This particularly applies to sector-specific legislation applicable in your industry. Lawyers specializing in corporate law in Amsterdam offer practice-oriented legal support to directors throughout the Netherlands.

Do you have questions about director liability, compliance, or contract law in the Netherlands? Contact a specialized lawyer in Amsterdam for tailored legal advice for your organization.