Liability of directors and supervisory officers
Doing business involves taking risks but as a director, you should never go so far as managing the company improperly, thereby causing damage to the company (internal directors’ and officers’ liability) or third parties (external directors’ and officers’ liability). Directors can be held personally liable for bad policy, manifestly improper management and mismanagement.
Directors’ and officers’ liability: not limited to a listed company, but a real risk for all entrepreneurs large and small
Mismanagement may be deemed to exist in the following cases:
- Deliberately neglecting your obligations, for example, by not paying bills;
- When you link third parties to the company without authorisation;
- Entering into transactions that significantly exceed the financial strength of your company, for example, irresponsible joint and several liability claims;
- Failure to take out the usual insurance policies;
- Taking unnecessary major financial risks;
- When combining private business with the company;
- Failure to meet legal requirements, for example, not registering the company in the Commercial Register of the Chamber of Commerce or not having the association’s articles of association recorded in a notarial deed;
- When you put your own interests before those of the company;
- When you improperly prepare important decisions that carry major financial risks.
If you or one of your co-directors can be blamed for the foregoing, then directors’ and officers’ liability may be deemed to exist under Article 2:9 of the Dutch Civil Code, on account of improper performance of duties. Only those to whom serious blame can be attributed are liable. Whether mismanagement exists is determined based on reasonableness and fairness, according to the standards of propriety that are currently specified by the courts. Directors’ and officers’ liability is therefore not a static concept. It is not just the directors of large listed companies who are held to account. Within SMEs and non-profit organisations, associations and foundations too, claims are occurring more often and more readily too. And did you know that as a director or supervisory officer of an association or foundation, you can also be held personally liable? As a director, you are individually responsible for your share in management and therefore in the policy of the company. If a liability claim based on improper performance of duties under Article 2:9 of the Dutch Civil Code is not successful in court, your creditors can still hold you liable through an action arising from a wrongful act (Article 6:162 of the Dutch Civil Code). Article 6:162 of the Dutch Civil Code stipulates that he who commits an unlawful act against another, which can be attributed to the former, is obliged to compensate the damage that the other person suffers as a result. Both large and small businesses can be held to account via these two avenues, and the option of holding directors liable in a private capacity should in no way be underestimated. Want to know more and reduce risks? Feel free to contact us! You can also reach us by calling our general office number: +31 20 521 01 30.« Back to corporate law