Asset protection for business owners under Dutch law

Asset protection for business owners in the Netherlands rests on one distinction: whether your business has legal personality. A sole trader (eenmanszaak) or a general partnership (vennootschap onder firma) has none, so business debts can be recovered directly from private assets. A private limited company (besloten vennootschap, BV) or a public limited company (naamloze vennootschap, NV) does have legal personality, and its debts are in principle its own. Everything else in this article is about the exceptions to that principle and how to stay outside them.

Dutch law does not recognise the trust structures and exemptions used in common law systems: there is no homestead exemption, no tenancy by the entirety, and an offshore asset protection trust generally offers a Dutch entrepreneur nothing but complications. What does work is unglamorous and legal: the right legal form, a clean separation between private and company assets, contracts and security rights that allocate risk in advance, insurance for what cannot be allocated, and directors who file on time. This article sets out how those elements fit together.

Which legal form actually limits liability

The choice of legal form decides who bears a claim that the business cannot pay. In a sole trader business and a general partnership there is no separate legal person, so a creditor can recover directly from the owner or from each partner in full. A general partnership does have a separated business estate, which its own creditors reach first, but once that estate is exhausted every partner is jointly and severally liable for the whole debt under article 18 of the Commercial Code (Wetboek van Koophandel). A bill to modernise the law on partnerships and give them legal personality has been prepared but has not been submitted to parliament, so the present rules continue to apply.

Converting a sole trader business into a bv is done by notarial deed and does not by itself remove liability for debts already incurred. Nor does it work retrospectively against a creditor who is already pressing: a transfer of assets made to frustrate recovery can be set aside by that creditor as a paulian act under article 3:45 of the Dutch Civil Code (Burgerlijk Wetboek, BW), and in bankruptcy by the trustee under article 42 of the Bankruptcy Act (Faillissementswet). Restructuring is therefore something you do while the business is healthy. Which form fits also depends on tax consequences that a tax adviser should assess; our corporate lawyers work with your accountant on that point rather than replacing them.

When a director is personally liable despite the bv

Dutch law has no doctrine of piercing the corporate veil. What it has instead is a set of specific grounds on which a director can be held liable personally, and they are used far more often than founders expect.

• Improper performance of duties towards the company (article 2:9 BW) – liability towards the company itself where a director is seriously culpable in the performance of his management task.
• Liability in bankruptcy (articles 2:248 and 2:138 BW) – the trustee can hold directors liable for the deficit in the estate where the board manifestly performed its duties improperly and that was an important cause of the bankruptcy. Failure to file the annual accounts on time, or to keep proper accounts, counts as improper performance and creates a rebuttable presumption that it was an important cause.
• Wrongful act towards a creditor (article 6:162 BW) – a director who enters into obligations on behalf of the company while knowing, or having reason to know, that it will not be able to perform and will offer no recourse, is personally liable to that creditor.
• Tax and social security debts (article 36 of the Collection of State Taxes Act) – a company that cannot pay its payroll tax, VAT or pension contributions must notify the Tax Administration in writing, in principle within two weeks of the day on which the tax should have been paid. Fail to give that notice and the director carries the burden of proving that the non-payment was not due to his mismanagement, which in practice is close to impossible.

The last of these is the single most common route to personal liability in a small company, and it is also the cheapest to avoid: a written notification of inability to pay costs nothing and preserves your position.

Separating private and business assets, including your spouse

The protection a bv offers is undermined by the owner who treats the company account as a private wallet. Pay yourself a salary or a dividend, never company expenses; document every transaction between you and the company, including a loan from the company to the director, in a written agreement on arm’s length terms; and register vehicles, machinery and immovable property in the name of the entity that is supposed to own them, at the vehicle authority (RDW) and the Land Registry (Kadaster) respectively. Keep the register of shareholders and the minutes of board and shareholder resolutions up to date, because in a dispute the burden of showing that a decision was actually taken falls on the company.

Marriage is the part most owners overlook. For marriages entered into on or after 1 January 2018 the statutory regime is a limited community of property under article 1:94 BW: what each spouse owned before the marriage, and gifts and inheritances, remain private, while what is built up during the marriage falls into the community. A business started during the marriage therefore falls into the community, and creditors of the entrepreneur can in principle recover from community assets. Prenuptial or postnuptial conditions (huwelijkse voorwaarden), drawn up by a civil-law notary, are the instrument that keeps the business out of the community.

Article 1:88 BW adds a protection that is frequently decisive in practice. A spouse needs the written consent of the other spouse for certain legal acts, including standing surety or accepting joint and several liability for the debt of a third party. Without that consent the other spouse can annul the act under article 1:89 BW. The exception is narrow: no consent is needed where the act is performed in the normal course of the business by a director who alone or with co-directors holds a majority of the shares. That exception is litigated regularly, so never assume it applies to a guarantee for a debt outside the ordinary course of trading.

Contracts, security rights and personal guarantees

Contracts allocate risk before it materialises, and in the Netherlands the effective ones are short and specific. Apply your general terms and conditions correctly: they only bind the other party if they were made available before or at the time the contract was concluded, and article 6:233 BW allows the other party to void a clause that was not offered a reasonable opportunity to take note of, or that is unreasonably onerous. A limitation of liability clause is enforceable in principle, but not against a party who caused the loss intentionally or through deliberate recklessness. Retention of title under article 3:92 BW keeps ownership of goods delivered until payment is made and is one of the few genuinely cheap protections available.

On the other side of the same coin sit security rights. A right of pledge over receivables, inventory or shares, and a mortgage over immovable property, give the holder priority over other creditors and a right of summary execution. If your company lends money to a customer, a supplier or a related entity, take security; if a bank lends to your company, negotiate the scope of the security it takes, because a blanket pledge over all present and future receivables can leave nothing for anyone else. Our page on financial security within corporate law sets out the instruments in more detail.

The personal guarantee deserves its own paragraph, because it converts a limited liability into an unlimited one with a single signature. A surety (borgtocht) is governed by article 7:850 BW, and where the surety is a private individual acting outside a profession or business, article 7:858 BW requires the deed to state a maximum amount, failing which the surety is not bound. Negotiate a cap, an end date and a release once agreed covenants are met, ask whether company security can be given instead, and obtain the written consent of your spouse where article 1:88 BW requires it. If you lease premises, check the guarantee in the lease as well; the statutory protection a tenant enjoys does not extend to the personal security the landlord asked you to sign.

A holding structure and a stak: where value should sit

The standard Dutch structure separates risk from value. A holding bv owns the shares in one or more operating companies and holds what must survive an insolvency: intellectual property, surplus cash, the pension or annuity obligation and, where appropriate, the business premises. The operating company runs the trade, employs the staff and carries the claims. Assets that the operating company needs are made available to it by licence or lease on arm’s length terms, so that the holding company is a creditor rather than a co-debtor if things go wrong.

Two conditions determine whether this actually holds up. The transactions between group companies must be real and documented, with market-rate royalties and rents that are actually invoiced and paid, because a paper structure that nobody follows is easy for a trustee to set aside. And the timing must be right: moving assets upstream when insolvency is already in sight exposes the transfer to challenge as a paulian act, and can support a claim that the directors acted improperly. The tax consequences of a holding structure, including the participation exemption and the treatment of a fiscal unity, are for your tax adviser to assess.

A foundation for the administration of shares (stichting administratiekantoor, or stak) does something different. The stak holds the legal title to the shares and issues depositary receipts to the beneficiaries, so voting rights sit with the board of the foundation while the economic entitlement sits with the holders of the receipts. It is the customary instrument for keeping control in one pair of hands during a succession in a family business, for granting employees a stake without giving them a vote, and for preventing shares from being split among heirs. It is not a shield against your own creditors: depositary receipts are assets like any other and can be attached. For the coordination between such a structure, a will and matrimonial conditions, our family office advisory team works alongside the notary.

Intellectual property and other intangibles

In many companies the most valuable assets are not on the balance sheet at all. Copyright arises automatically on creation, without any registration, and under the Dutch Copyright Act the employer is deemed to be the author of works created by an employee in the performance of the employment. That rule does not extend to freelancers: without a written assignment, the copyright in the software, designs or texts you paid a contractor for stays with the contractor. A short assignment clause in every contractor agreement is the cheapest protection in this article.

Trade marks are registered with the Benelux Office for Intellectual Property for Benelux protection or with the EU Intellectual Property Office for the whole Union; a trade name is protected separately under the Trade Names Act by use rather than registration. Patents are granted nationally by the Netherlands Patent Office or, for European protection, by the European Patent Office, with the option of unitary effect and jurisdiction of the Unified Patent Court. Confidential business information that has commercial value and is kept secret is protected under the Trade Secrets Act (Wet bescherming bedrijfsgeheimen), but only if you can show that you actually took reasonable measures to keep it secret, which means access restrictions and confidentiality clauses rather than good intentions.

Non-competition and non-solicitation clauses have a place here, subject to the strict rules of article 7:653 BW in employment contracts. Personal data is not an asset you own: it is a responsibility, and a data breach must be notified to the Dutch Data Protection Authority within seventy-two hours where it is likely to pose a risk to the persons concerned.

Insurance: which cover actually transfers risk

Insurance is where risk that cannot be excluded by contract goes. The Dutch market works with a limited number of standard products, and the Anglo-American labels used in international guidance do not map onto them. There is no workers’ compensation insurance in the Netherlands: an employee who suffers injury or illness in the course of the work claims against the employer under article 7:658 BW, and the employer covers that exposure through employer’s liability insurance and by continuing to pay wages during sickness.

The usual portfolio consists of general business liability cover, professional indemnity cover for advisory work, directors and officers liability cover for personal claims against the board, cyber cover, business interruption cover and legal expenses cover. Recall cover matters for manufacturers and importers, who bear a strict liability for defective products under articles 6:185 and following BW. Review the sums insured whenever turnover, the product range or the geographical market changes, and read the exclusions rather than the brochure: the gap between two policies is where uninsured claims live.

What creditors can and cannot reach

Dutch law starts from article 3:276 BW: a creditor can recover a claim from all the assets of the debtor. The exceptions are narrow and statutory, and they are far less generous than the exemptions found in other jurisdictions. There is no protection for an owner-occupied home: in bankruptcy the trustee can sell it, and outside bankruptcy a creditor with an enforceable title can levy execution on it.

What is protected is set out in the Code of Civil Procedure and the Bankruptcy Act. Attachment of wages, benefits and pension payments is limited by the attachment-free threshold, which is calculated according to a statutory formula. Basic household goods, clothing, food and the tools a person needs to earn a living are exempt from attachment. Accrued rights under a pension scheme are in principle beyond the reach of creditors, whereas the surrender value of an annuity insurance is protected only within the limits set by article 22a of the Bankruptcy Act. For a natural person who cannot pay, the statutory debt restructuring scheme under the Bankruptcy Act now runs for eighteen months, after which a clean slate can follow.

For a company in difficulty there is one more instrument worth knowing before creditors move. Under the scheme for court confirmation of an extrajudicial restructuring plan, a company can bind dissenting creditors to a composition outside insolvency, provided the statutory safeguards are met. Used in time it saves an enterprise that would otherwise be broken up, and it is a genuine alternative to letting a group of creditors force a bankruptcy.

Keeping the structure current

A structure that was right at incorporation drifts. Review it once a year and after every material change: new shareholders, a first employee, a foreign customer, a substantial loan, a divorce, an acquisition or a succession. Check that the trade register entry, the register of shareholders and the register of beneficial owners are accurate; registration of ultimate beneficial owners with the Chamber of Commerce remains mandatory, although public access was closed following the judgment of the Court of Justice of the European Union of 22 November 2022 and access is now limited to competent authorities and to parties with a legitimate interest.

Check the filing deadlines as well, because they carry personal liability. The annual accounts of a bv must be drawn up within five months of the end of the financial year, a period the general meeting may extend by up to five months on the ground of special circumstances, adopted by the general meeting, and filed with the trade register within eight days of adoption and in any event no later than twelve months after the end of the financial year. Keep your records for seven years, and ten years for data relating to immovable property. Late filing is not a formality: in a bankruptcy it is deemed improper performance of duties and shifts the burden of proof onto the board.

Law & More advises entrepreneurs and family businesses on the structure of their business, shareholders’ agreements, security rights and guarantees, director liability and the restructuring of a group before problems arise rather than after. We work with your accountant and tax adviser where the tax consequences have to be assessed. To review your own position, contact the team at Law & More.