Directors' liability

Directors' liability: personal risks for directors and de facto managers

Directors' liability arises when a director is held personally liable for damages, debts, or obligations of the company. This can entail significant financial and reputational risks, both personally and personally. Dutch law has a strict system: the bar is set high, but once the threshold is met, liability is virtually unlimited and affects the director's private assets. In addition to statutory directors, de facto managers (Article 2:248, paragraph 7 of the Dutch Civil Code) and, where applicable, shadow directors can also be held liable.

Who do we work for?

We assist directors in all phases of liability discussions, from initial identification to litigation. Our clients are statutory directors of private and public limited companies, director-major shareholders, interim directors and interim CFOs, supervisory board members, directors of foundations and associations, directors of cooperatives and housing corporations, de facto managers, and parties classified as shadow directors. In addition, we assist bankruptcy trustees and creditors seeking to hold directors liable, as well as D&O insurers deciding on policy coverage.

The legal foundations of directors' liability

Internal liability (Article 2:9 of the Dutch Civil Code)

The director is bound to the company to properly perform his duties. Violation leads to liability when the director can be seriously blamed (Staleman/Van de Ven, Supreme Court, 10 January 1997). The test is collective: the board as a whole is responsible, with the possibility of exoneration for individual directors who can demonstrate that they are not seriously blameworthy and that they were not negligent in taking measures to avert the consequences.

External liability based on unlawful act (Article 6:162 of the Dutch Civil Code)

Directors may be held externally liable to creditors on the grounds of a tort. The best-known grounds are the Beklamel standard (Beklamel judgment, Supreme Court, 6 October 1989: entering into obligations while the director knew or ought to have known that the company would not perform and would offer no recourse), and the Ontvanger/Roelofsen criteria (Supreme Court, 8 December 2006: unwillingness to pay or frustrating recourse). The Spaanse Villa judgment (Supreme Court, 23 November 2012) has further defined the standard for directors' liability regarding involvement in the company's unlawful conduct.

Liability in bankruptcy (Articles 2:138 and 2:248 of the Dutch Civil Code)

In bankruptcy, Articles 2:138 of the Dutch Civil Code (NV) and 2:248 of the Dutch Civil Code (BV) provide the bankruptcy trustee with a separate legal basis to hold directors liable for improper management that is a significant cause of the bankruptcy. In the event of a breach of the accounting obligation (Article 2:10 of the Dutch Civil Code) or the publication obligation (Article 2:394 of the Dutch Civil Code), there is an irrefutable presumption of improper management and a rebuttable presumption that this is a significant cause of the bankruptcy. In that case, the burden of proof shifts to the director.

Liability towards the tax authorities and implementing agencies

The Collection Act 1990 (Article 36 IW 1990) regulates the joint and several liability of directors for unpaid taxes following a timely notification of inability to pay. If no notification is given, or if notification is not given in a timely manner, there is a presumption of manifestly improper management. Similar regulations apply to pension contributions and social insurance contributions via the UWV.

What are the most common complaints?

In practice, recurring issues include: entering into obligations when the company is evidently unable to meet them; selective payment of affiliated or friendly creditors in anticipation of bankruptcy; transferring assets to an affiliated party at an excessively low price (potentially fraudulent); violation of accounting or publication obligations; failure to report insolvency to the tax authorities in a timely manner; failure to provide adequate information to co-directors or supervisory board members; undertaking risky transactions without sufficient corporate justification; and failure to take adequate measures in response to signs of mismanagement.

D&O insurance

Many directors are covered under a Directors and Officers (D&O) insurance policy, which covers personal liability up to a specified insured amount. The policy typically includes exclusions for intent, fraud, and willful unlawful conduct. Timely notification of a claim or a circumstance that could lead to a claim is essential under the policy conditions. We assist with the notification, consultation with the insurer, and any disputes regarding policy coverage.

Our working method

An initial response to a liability claim can be used against you years later. We first assess the basis, the facts, the documents, and the evidentiary position. Subsequently, we determine whether the most effective course of action lies in a substantive defense, settlement negotiations, mediation, or litigation. At every step, we think ahead: what happens if the proceedings last two years, what are the tax implications of a settlement, how are your private assets protected, and how is your reputation safeguarded?

Why MKBjuristen.nl?

MKBjuristen.nl has years of experience with directors' liability, on both the defense and the claimant side. We are familiar with case law ranging from Beklamel to Spaanse Villa, as well as the practices of bankruptcy trustees, insurers, and courts. Specialist advice starting from €155 per hour excluding VAT, with clear agreements in advance regarding scope and budget.

Exoneration: can an individual director evade liability?

In the event of improper management, all directors are in principle jointly and severally liable (Article 2:9 of the Dutch Civil Code). An individual director can exonerate himself by demonstrating that, taking into account the division of tasks among them, he is not seriously at fault and that he was not negligent in taking measures to avert the consequences. The burden of proof for this lies with the director himself. A clear division of tasks and the recording of objections to a decision are therefore of great importance.

Discharge and its limits

With a discharge, the general meeting approves the policy pursued. However, this indemnity is limited: it applies only to facts that were known to the company at the time of granting or that were evident from the submitted documents. A discharge offers no protection against concealed facts or facts that emerged later, and it has no effect against the bankruptcy trustee or third parties. Therefore, do not count on a granted discharge to provide you with the security you deserve.

Effect via Article 2:11 of the Dutch Civil Code

If a director is itself a legal entity — for example, a personal holding company that acts as director of the operating company — then liability under Article 2:11 of the Dutch Civil Code also rests jointly and severally on the natural person who manages that holding company. An interposed BV therefore offers no shield against directors' liability.

This is how you avoid directors' liability

Liability can often be prevented through good governance and proper documentation. Ensure a clear division of tasks, record decisions and their substantiation, act promptly in the event of financial problems, and—if payment of taxes or premiums is not possible—notify the company of its inability to pay on time. Do not enter into obligations that you know, or ought to know, the company cannot fulfill.

Part of our corporate law team

Directors' liability falls within our corporate lawteam, which focuses on shareholders, management, and governance. If your specific concern is liability in bankruptcy (Article 2:248 of the Dutch Civil Code, the Beklamel standard, and the role of the trustee), please visit our page on insolvency law. Our lawyers and in-house counsel assist both large companies and local entrepreneurs — from advice to litigation.