Transfer of a business

The director and sole shareholder who sells his private limited company must carefully consider the buyer’s intentions with regard to the company being transferred.

A ruling by the District Court of Oost-Brabant in early May shows that the former director of a sold company may still be liable under certain circumstances. This means that even after the transfer of shares in his company, directors’ liability may still apply.

Recourse impossible

The director’s liability arises when the seller transfers his company to a buyer and this subsequently results in the company no longer being able to meet its existing obligations. This is the case if the director has allowed the company to fail to meet its legal or contractual obligations that arose before the date of transfer and the claims of these creditors prove to be unenforceable. The same applies to a situation in which the claim was still disputed at the time of sale and later proved to be enforceable.

Sufficiently serious blame

In order to establish liability, it must be proven that the former director can be blamed sufficiently seriously for the non-recoverability of the claims. In this case, it is essential to establish whether the director knew or at least should have known that after the transfer of the company, it would no longer be able to recover existing claims. According to the court, this is always the case if the transfer was intended to make it impossible to recover existing claims. However, even if the seller has not made sufficient efforts to investigate the buyer’s intentions with regard to the company, there may still be sufficient grounds for blame. This also applies if the seller has accepted the risk that the company will no longer be able to meet its obligations after the transfer.

Investigation

According to the court, before transferring the company, the seller must at least investigate the past, intentions and background of the buyer in question.

An important factor in the present situation was that the buyer had been involved in a series of bankruptcies in the past. This fact, combined with the failure to investigate the buyer’s plans for the company in more detail, meant that the former director could be held personally liable.

Director’s liability

Once it has been established that the director did not, or at least did not sufficiently, investigate the buyer and his intentions and did not act in good faith, liability for unlawful acts may arise on the basis of the present ruling. Fruytier Lawyers in Business is happy to assist you both with the sale of your company and with any subsequent liability issues.