Internal directors’ liability under Article 2:9 BW

A director of a Dutch company is personally liable to the company itself only if they failed to perform their duties properly and can be seriously blamed for that. This is the internal liability of Article 2:9 of the Dutch Civil Code (Burgerlijk Wetboek, BW); the main exception is that a co-director can escape liability by showing that, given the division of tasks, no serious reproach applies to them and they took steps to limit the damage.

Internal liability is about loss suffered by the company, and only the company can claim it. In a bankruptcy, the trustee (curator) brings the claim on behalf of the estate. Liability towards creditors and other third parties follows different rules, which we compare further on. Below we explain what proper performance of duties means, how the serious-reproach test works in practice, how collective responsibility operates on a board, and what you can do as a director to limit your exposure.

What does Article 2:9 of the Dutch Civil Code say?

Every director must perform their duties properly towards the company, and every director is responsible for the general conduct of affairs. A director is liable for the whole of the loss caused by improper management (onbehoorlijk bestuur), unless they can show that no serious reproach can be made to them.

The text of Article 2:9 of the Civil Code has two paragraphs. Paragraph 1 lays down the basic duty: every director is obliged towards the legal entity to perform their task properly. Paragraph 2 adds that every director bears responsibility for the general conduct of affairs. The director is liable for the whole in respect of improper management, unless, also in view of the tasks assigned to others, no serious reproach can be made to them and they were not negligent in taking measures to avert the consequences of the improper management.

The provision applies to all legal entities covered by Book 2 of the Civil Code: the private limited company (besloten vennootschap, BV), the public limited company (naamloze vennootschap, NV), the foundation (stichting), the association (vereniging) and the cooperative. For supervisory directors (commissarissen) of a BV and NV, the law declares the same standard applicable to their supervisory task.

This explanation is written mainly for directors of BVs and NVs who want to understand their personal risk. Supervisory directors, shareholders and in-house lawyers will also find practical guidance here, for example when a company considers holding a former director to account.

What does proper performance of duties mean?

Proper performance means acting as a reasonably competent and careful director would act in the same circumstances. The director must put the interests of the company first and comply with the law and the articles of association.

The duty follows from the relationship of trust between the director and the company. A director manages assets that are not their own. That is why the law requires them to act with the care and loyalty that may be expected of someone in that position. The interest of the company is broad: under Article 2:239(5) of the Civil Code, the board of a BV must be guided by the interest of the company and its business, which includes the interests of stakeholders such as employees and creditors.

Improper management is conduct that falls short of that standard. The court compares what the director did with what a reasonably acting director, with the same knowledge and in the same situation, would have done. It weighs the information that was available, the nature of the business and the circumstances in which the decision was made. There is no legal presumption of improper management; the company must prove that the standard was breached.

When does a director face a serious reproach?

Only when no reasonably acting director would have acted the same way in the same circumstances. A decision that turns out badly, or a business risk that does not pay off, is not enough.

The leading judgment is Staleman/Van de Ven of the Supreme Court (Hoge Raad) of 10 January 1997 (ECLI:NL:HR:1997:ZC2243). The Supreme Court held that a director is liable towards the company only if a serious reproach can be made to them. The high threshold respects the freedom of directors to take business decisions and prevents every disappointing result from leading to liability with hindsight.

Whether a serious reproach exists depends on all the circumstances of the case. The Supreme Court listed several factors: the nature of the activities of the legal entity, the risks that generally arise from those activities, the division of tasks within the board, any guidelines that apply to the board, the information that the director had or should have had when making the decision or when acting, and the insight and care that may be expected of a director who is fit for the task and fulfils it carefully.

The test therefore looks at the process as much as at the result. Courts are reluctant to second-guess a business decision itself, but they do examine how the director arrived at it. A director who ignored clear warning signs, skipped obvious research or acted against the articles of association loses the protection that the high threshold normally offers.

Some conduct almost always leads to a serious reproach. Examples are fraud, using company money for private purposes, and knowingly acting in breach of a provision of the articles of association that is meant to protect the company, such as a requirement to obtain shareholder approval. In those cases the Supreme Court accepts that a serious reproach is in principle established, unless the director can point to special circumstances that justify the conduct.

That rule comes from the Supreme Court judgment in Berghuizer Papierfabriek (2002). It shifts the burden in practice: once the company shows that the director acted against such a provision, the director must explain why that was nevertheless justified.

How does collective liability work on a board?

On a board with several directors, each director is in principle liable for the whole of the loss caused by improper management. A director escapes only by showing that no serious reproach applies to them and that they took steps to avert the consequences.

This follows from Article 2:9(2) of the Civil Code: every director is responsible for the general conduct of affairs, not only for their own portfolio. If one director makes a serious mistake, the company can in principle claim the full loss from all board members jointly and severally. The directors must then settle among themselves who bears what share.

A division of tasks, for example in board regulations, is relevant but not decisive. The law expressly takes into account the tasks assigned to others. A director who was responsible for sales and had no reason to doubt the work of the finance director has a better defence than the finance director. However, the division of tasks does not relieve anyone of their responsibility for core duties that belong to the board as a whole, such as supervising the financial position, keeping proper accounts and complying with the law.

The escape route has two cumulative conditions. First, no serious reproach can be made to the director personally, also in view of the tasks assigned to others. Second, they were not negligent in taking measures to avert the consequences. A director who noticed that something was wrong but did nothing, or merely voiced doubts at a meeting without follow-up, will usually not meet the second condition. Objecting in writing, insisting on an investigation, informing the supervisory board or the shareholders and, as a last resort, resigning are the kinds of steps a court looks for.

In which situations do claims under Article 2:9 arise?

Most claims concern a limited number of recurring situations: poor financial administration, decisions taken without adequate preparation, breach of the articles of association or internal rules, and conflicts of interest.

A director must ensure adequate systems for risk management and internal control. The nature and scope depend on the size and complexity of the company, but their complete absence will almost certainly lead to criticism. Structural negligence in the financial administration is a classic example. If the accounts are so poor that the board has no reliable overview of the financial position, a director will find it hard to defend decisions based on that overview. The court will assume that a reasonably acting director would at least have ensured that the figures were reliable. Keeping proper accounts is also a statutory duty under Article 2:10 of the Civil Code.

Important decisions require adequate preparation. Before entering into a major agreement or investment, directors must inform themselves about the relevant facts and risks. An acquisition without basic due diligence, or a contract with a large financial impact concluded without looking at the market or the counterparty, can lead to a serious reproach if it goes wrong. The same applies to taking excessive risks without any mitigation: entrepreneurship involves risk, but the basis on which a risk is accepted must be defensible.

Breaching the articles of association or internal rules is another risk area. The articles may require approval from the general meeting or the supervisory board for certain decisions, such as large investments, borrowing or selling a business unit. A director who ignores such a requirement is, as explained above, in principle seriously to blame. The same risk arises for a director who acts with a conflict of interest without disclosing it. Under Article 2:239(6) of the Civil Code, a director of a BV with a direct or indirect personal interest that conflicts with the interest of the company may not take part in the deliberations and decision-making. Withdrawing company assets for personal gain, or using company money for private expenses, will almost always lead to liability.

Can a discharge protect a director?

Partly. A discharge (decharge) granted by the general meeting releases the director only for matters that are apparent from the annual accounts or were otherwise disclosed to the general meeting before it granted the discharge.

Many companies grant their directors discharge when the annual accounts are adopted. That can block a later claim under Article 2:9, but its scope is limited. In Staleman/Van de Ven the Supreme Court held that a discharge does not cover facts that were not apparent from the accounts and were not otherwise communicated to the general meeting. A director who kept a problem out of the accounts cannot shelter behind the discharge. In a bankruptcy, the trustee will therefore always examine what the shareholders actually knew.

How does a liability claim proceed?

The company must prove improper management, a serious reproach, loss and a causal link. The director can then try to show that the exception of Article 2:9(2) applies to them.

The general rule of Article 150 of the Dutch Code of Civil Procedure (Wetboek van Burgerlijke Rechtsvordering, Rv) applies: the party that relies on a legal consequence must prove the facts supporting it. In practice a claim usually runs through the following elements.

• Loss: the company must show in concrete terms that it suffered loss and quantify it.
• Causal link: there must be a sufficient connection between the conduct of the director and the loss.
• Serious reproach: the company must substantiate that the director can be seriously blamed, taking all circumstances into account. This is where most proceedings are decided.
• Exculpation: the individual director can show that, given the division of tasks, no serious reproach applies to them and that they took measures to avert the consequences.

Before litigation, the company or the trustee usually sends a letter setting out the allegations and inviting the director to respond. It is wise to answer that letter carefully and with documents, because the reply often shapes the rest of the case. In complex financial cases the court may appoint an expert, and an inquiry by the Enterprise Chamber (Ondernemingskamer) of the Amsterdam Court of Appeal can provide the factual basis for a later claim. The costs of such proceedings are considerable, which is one reason why many cases end in a settlement.

The claim is subject to the general limitation rule for damages in Article 3:310 of the Civil Code: five years after the company became aware of both the loss and the liable director, and in any event twenty years after the event that caused the loss. Because the company acts through its board, the question of when it became aware can itself be disputed, for example when the director concerned was still in office.

How does internal liability differ from external liability?

Internal liability concerns loss suffered by the company itself and is claimed by the company. External liability concerns loss suffered by creditors or other third parties, or the deficit of a bankrupt estate, and follows its own rules.

The main external routes are the bankruptcy liability of Articles 2:138 (NV) and 2:248 (BV) of the Civil Code and liability for an unlawful act under Article 6:162. Under Article 2:248, each director is jointly and severally liable for the deficit in a bankruptcy if the board manifestly performed its duties improperly and this is likely to be an important cause of the bankruptcy. That claim can only be brought by the trustee, for the benefit of all creditors, and only concerns improper performance in the three years before the bankruptcy.

The statutory presumption works as follows. If the board did not comply with its duty to keep proper accounts (Article 2:10) or to publish the annual accounts in time (Article 2:394), it is deemed to have performed its duties improperly, and it is presumed that this was an important cause of the bankruptcy. The director can rebut the presumption about the cause, but not the finding of improper performance. A failure to publish that is insignificant is disregarded.

In a bankruptcy, the trustee can use both routes. A loss that the company suffered before the bankruptcy, for example because a director paid themselves unjustified bonuses, can be claimed under Article 2:9. The overall deficit caused by manifestly improper management falls under Article 2:248. Individual shareholders and creditors cannot claim under Article 2:9. A shareholder whose shares lost value because of improper management in principle has no claim of their own for that derivative loss; the claim belongs to the company.

What recurring problems lead to claims, and how do you avoid them?

Three patterns recur: fellow directors who were not properly informed, incidents that were not followed up, and risks that were presented more favourably than they were. Each can be prevented with simple governance measures.

If one director withholds relevant information from the others, all of them may be exposed, because the co-directors will find it hard to show that they took steps to avert the consequences. Directors have a duty to inform each other fully and in time. A co-director who never asked questions will struggle to exculpate themselves. A practical remedy is a formal reporting duty, under which each director reports periodically and in writing on their portfolio, together with careful minutes that record which information was shared and when. Board regulations with minimum requirements for information sharing help in any later discussion about who knew what.

Failing to act once a problem surfaces can be a serious reproach in itself. This applies in particular when material weaknesses in the business are identified but not addressed, for example an internal auditor who reports serious shortcomings that the board leaves unresolved. Escalation procedures that set out how incidents are investigated, reported and resolved help here, as does documenting the measures taken once a problem has been identified.

Incorrect or incomplete communication about risks to shareholders, the supervisory board or other stakeholders can also lead to liability, especially when risks are played down. Shareholders who approve a decision on the basis of misleading information have not really approved it. Make sure risks are disclosed accurately in board documents and presentations, and take specialist advice if you doubt whether a risk is material.

What can you do as a director to limit your exposure?

Good governance is more effective than a defence after the fact. Reliable accounts, documented decisions, compliance with approval requirements and timely escalation make a serious reproach much less likely.

Keep your administration in order, so that the board has reliable figures in time. Record the information on which important decisions are based, and why alternatives were rejected. Check the articles of association and the board regulations before taking a decision that may require approval. Disclose any conflict of interest and step back from the decision-making where the law requires it. If you disagree with a board decision that you consider irresponsible, record your objection in writing and take follow-up steps.

Directors and officers liability insurance (D&O insurance) can cover the cost of defence and, depending on the policy, the loss. Check the exclusions carefully: intentional conduct and fraud are usually not covered. Finally, pay attention to the discharge at the adoption of the annual accounts, and make sure important matters are actually disclosed to the general meeting so that the discharge has real value.

What should you do if the company holds you liable?

Take the letter seriously, collect the documents that show how decisions were made, and respond within the time given. Do not admit liability before you know the full facts.

An anonymised example shows what matters. A company holds its former finance director liable after a large customer went bankrupt without paying. The company argues that the director should have required security. The director shows board minutes in which the credit risk was discussed, a credit insurance policy that turned out not to cover the loss, and the approval of the supervisory board. In such a case the claim will usually fail, because the decision was prepared carefully and a reasonably acting director could have made it.

Check early whether a discharge was granted and what the general meeting knew at the time. Notify your D&O insurer promptly, because most policies require notification as soon as a claim is made or threatened. If fellow directors were involved, consider whether they should share the burden. And keep the limitation period in mind: an old allegation may already be time-barred, but a written claim from the company interrupts the period.

In summary

• Under Article 2:9 of the Civil Code a director is liable to the company for improper management, but only if a serious reproach can be made to them.
• The Supreme Court test from Staleman/Van de Ven weighs all circumstances, including the nature of the business, the risks, the division of tasks and the information available at the time.
• On a board with several directors, each is in principle liable for the whole loss; a director escapes only by showing that no serious reproach applies to them and that they took steps to avert the consequences.
• Acting against the articles of association, fraud and using company assets for private purposes almost always lead to liability.
• Internal liability differs from external bankruptcy liability under Articles 2:138 and 2:248, which only the trustee can invoke.

Frequently asked questions

Who can bring a claim under Article 2:9?

Only the company itself. In a bankruptcy, the trustee brings the claim on behalf of the estate. Shareholders and creditors cannot rely on Article 2:9; they would need another basis, such as an unlawful act.

Is a bad business decision enough for liability?

No. The high threshold of a serious reproach protects normal business decisions that turn out unfavourably. What matters is whether a reasonably acting director, with the same knowledge, would have made the same decision.

Does the serious-reproach test also apply to supervisory directors?

Yes. For supervisory directors of a BV and NV, the law applies the same standard to the performance of their supervisory task, including the collective responsibility.

Can the board regulations protect me?

They help, because the division of tasks is taken into account. They do not remove your responsibility for core board duties such as financial supervision and compliance with the law.

Does a discharge rule out any claim?

No. A discharge covers only matters that were apparent from the annual accounts or otherwise disclosed to the general meeting before the discharge was granted.

Law & More advises directors, supervisory directors and companies on liability questions, from prevention to proceedings. You can read more on our corporate law page.

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