Directors’ Liability in the Netherlands

Serving as a director of a Dutch BV or NV brings responsibility as well as authority. Normally the company bears the consequences of the decisions its board takes, but in certain situations a director can be addressed personally, with private assets at stake. This page explains when that happens under Dutch law and what to do when a claim arrives.

When is a director personally liable under Dutch law?

Dutch law does not treat every disappointing outcome as a reason to hold a director personally liable. Personal liability comes into view only where a director’s conduct falls clearly below the standard expected of a reasonably acting director in comparable circumstances. Claims come from three directions: the company itself, a creditor who says the director acted wrongfully towards them, or a trustee in bankruptcy.

The main rule: the company is liable, not the director

A BV and an NV are separate legal persons, and a director who signs on behalf of the company binds the company rather than himself. This separation is the starting point of Dutch corporate law in the Netherlands. Directors’ liability is an exception to it, and anyone invoking it must substantiate why the ordinary rule should be set aside.

Internal liability towards the company (article 2:9 Dutch Civil Code)

Article 2:9 of the Dutch Civil Code requires every director to perform his duties properly. If the board falls short and the company suffers loss, the company can hold the director liable. The standard is demanding: there must be seriously culpable conduct, described in Dutch as an ernstig verwijt.

Whether that threshold is met is assessed on all the circumstances, including the nature of the activities, the division of tasks within the board and the information available at the time. Liability is in principle joint and several, although an individual director may escape it by showing that the failure cannot be attributed to him and that he was not negligent in preventing its consequences.

External liability towards third parties and creditors

A third party who suffers loss can rely on article 6:162 of the Dutch Civil Code, the general provision on wrongful acts. Here too a sufficiently serious personal reproach is required. Two patterns recur: entering into an obligation while knowing the company will not perform and will offer no recourse, and frustrating payment of an existing claim by moving assets out of reach.

Under article 36 of the Collection of State Taxes Act 1990, a company that cannot pay wage tax or turnover tax must notify the tax authorities of its inability to pay. Where that notification is not made properly, the scope for rebutting liability is narrowed considerably.

Directors’ liability in bankruptcy: improper management

If the company is declared bankrupt, the trustee may hold the board liable under article 2:248 of the Dutch Civil Code for a BV, or article 2:138 for an NV. The trustee must show that the board performed its duties improperly and that this was an important cause of the bankruptcy. If that succeeds, the directors are jointly and severally liable for the deficit in the estate.

The provision contains a powerful evidential mechanism. Where the board has breached the bookkeeping obligation of article 2:10, or the duty to publish the annual accounts under article 2:394, improper performance is deemed established and is presumed to have been an important cause of the bankruptcy. They are therefore often the first thing a trustee examines; our lawyers who handle bankruptcy matters regularly act for board members in this position.

De facto directors and supervisory directors

Liability is not confined to those registered in the trade register. Someone who has in fact determined the company’s policy as if he were a director can be treated as one. Article 2:11 of the Dutch Civil Code adds that where a legal person acts as director, liability passes through to the natural persons who are its directors. Supervisory directors are subject to comparable standards, measured against the supervisory role rather than day-to-day management.

Discharge (decharge) and what it does and does not cover

Shareholders often grant the board discharge at the general meeting for the management conducted during the financial year. It is an internal act: it may release the director from internal liability towards the company, but it has no effect on claims by creditors and it does not bind a trustee in bankruptcy.

Its reach is also limited by what was disclosed. Discharge covers what appears from the annual accounts and what was otherwise made known to the meeting; matters that were concealed remain open. Disagreements about its scope frequently surface alongside disputes between shareholders.

D&O insurance and its limits

Directors’ and officers’ liability insurance can be valuable, because it usually funds the costs of defending a claim. Cover is not unlimited: policies commonly exclude intentional or fraudulent conduct, and may respond only to claims notified during the policy period. A director confronted with a claim should check the conditions and notify the insurer without delay.

What to do if you receive a liability claim

A letter alleging directors’ liability sets out a narrative built from documents. The way it is answered at the outset shapes everything that follows.

• Secure the records: minutes, board resolutions, correspondence, annual accounts and the underlying administration.
• Do not amend or delete documents, and avoid informal written explanations before your position has been assessed.
• Notify the insurer under any D&O policy, observing the notification conditions.
• Check what the articles of association and any indemnity arrangement provide.
• Establish the precise legal basis invoked, since the standard and the burden of proof differ.

Preventing liability: bookkeeping, filing and the distribution test

Most liability files trace back to matters that were manageable at the time. An administration showing the company’s position at any moment, and annual accounts filed on time, remove the presumptions that make bankruptcy claims hard to defend. Distributions deserve care: article 2:216 of the Dutch Civil Code requires the board to approve a distribution and to assess whether the company will remain able to pay its debts as they fall due.

1. Record board decisions, including the information considered and the reasons given.
2. Document dissent, and follow it up if the concern is not addressed.
3. Agree a clear division of tasks, while maintaining oversight of the whole.
4. Seek advice as soon as continuity becomes uncertain, rather than once payments have stopped.
5. Meet the notification duty for wage tax and turnover tax when payment problems arise.

Frequently asked questions

Can a former director still be held liable after resigning?

Yes. Resignation ends the mandate going forward, but not responsibility for the period in office. Claims often arrive long after a departure, so a departing director should ensure the record of that period is complete.

Does an indemnity from the company protect me?

That depends on the arrangement and on the company’s ability to honour it. Indemnities generally do not extend to seriously culpable conduct, and offer little comfort if the company is insolvent.

I was one of several directors. Am I liable for a colleague’s conduct?

The starting point is collective, because liability within a board is joint and several. A director can nevertheless exculpate himself by showing that the failure is not attributable to him and that he was not negligent.

Does a claim always end up in court?

No. Many matters are resolved through correspondence or negotiation, sometimes with the insurer involved. A well-substantiated early response can bring a claim to an end without proceedings.

Costs and working arrangements

The first introductory conversation is free of charge, so that you can explain your situation and hear how we assess it before committing to anything. Thereafter we work on an hourly basis. The approach and the expected amount of work are agreed with you in advance, and we discuss it with you if the matter develops in a way that changes that picture. Our firm does not work on a no-cure-no-pay basis.

Speak to a business lawyer about directors’ liability

Directors’ liability matters turn on detail: what was decided, when, on what information, and what was recorded. If you have received a claim, if a trustee has approached you, or if you want to review your position, we are glad to discuss it. Our head office is in Eindhoven and we have a meeting location in Amsterdam. We act for clients throughout the Netherlands and advise in Dutch and in English.

• Telephone: +31 40 369 06 80
• E-mail: info@lawandmore.nl