Transfer of undertaking
Your rights and obligations
A business transfer or business takeover can take place in many ways. A sale of all company activities, such as the premises, the inventory, the company name and existing customers, is a transfer of undertaking. The director and sole shareholder selling his B.V. should carefully consider the buyer’s intentions with the company to be transferred. A ruling by the East Brabant District Court in early May, shows that the former director of a sold company may still be liable under circumstances. So director liability may still exist even after the share transfer of his company.
Your rights and obligations
A business transfer or business takeover can take place in many ways. A sale of all company activities, such as the premises, the inventory, the company name and existing customers, is a transfer of undertaking. The director and sole shareholder selling his B.V. should carefully Director liability arises when the seller transfers his company to a buyer and this subsequently results in the company no longer being able to fulfil its existing obligations. This arises if the director has allowed the company to default on its legal or contractual obligations that arose before the date of transfer of undertaking and claims of these debtors turn out to be unrecoverable. The same applies to a situation where the claim was still disputed at the time of the sale and was later found to be assignable.
Transfer of undertaking: wrongful acts
To establish liability, it must be proven that the former director can be blamed sufficiently seriously for the non-recoverability of the claims. Essential for this in this case is whether the director knew or at least should have known that after the transfer of undertaking, it would no longer have recourse to existing claims. According to the court, this is the case anyway if the transfer was aimed at making it impossible to recover existing claims. But even if the seller did not make sufficient effort to investigate the buyer’s intentions with the company, this could constitute a sufficiently serious fault. This also applies when the seller has accepted the risk that the company will no longer be able to fulfil its obligations after the business transfer.
Search for te buyer before the business transfer
According to the court, before the business transfer, the seller should at least investigate the past, intentions and background of the buyer in question. An important fact in the present situation was that the buyer had been involved in a series of bankruptcies in the past. This fact, as well as the failure to investigate further what plans the buyer had for the company, led to the former director being personally blameworthy.
Expert advice on directors’ liability
As soon as it has been established that the director did not investigate, or at least did not sufficiently investigate, the buyer and his intentions and did not act in good faith, liability in tort is lurking on the basis of this ruling. The lawyers at Fruytier Lawyers in Business have extensive experience in the field of directors’ liability. Are you looking for a lawyer who can assist you in all areas? For a smooth transfer of undertaking or in case of impending liability afterwards, our lawyers in employment law will be happy to assist you.« Back to employment law