Published on: 3 March 2017

Former director still liable?

Being held personally liable for the mismanagement of your successor; a nightmare. This happened to the former director of a construction company. 
A resigning director has to investigate the new owner/director. If he does not know this, he can be personally held liable as former director if the company goes bankrupt after he resigned. It does not matter that the bankruptcy is caused by manifest improper management by the succeeding director, as was shown by a recent ruling of the Court of Appeal of Den Bosch.

New director turns out to be a crook

In the case that was put before the Court of Appeal (see: ECLI:NL:GHSHE:2016:3235, JOR 2017/3), the company was sold to a crook. This crook started misusing the company after the purchase. Considerable debts were incurred in a short period of time, including for the lease of cars. Almost €50,000 was spent on fuel in two months. The company went bankrupt eight months after the takeover.

Bankruptcy trustee goes to court
The bankruptcy trustee claimed in the first instance that the former director and new director had to compensate the shortfall of assets. Even though the bankruptcy of the company was caused by the new owner/director (the crook), there was still manifest improper management by the former director because he did not investigate the reliability of the proposed purchaser prior to the sale.

Former director should have conducted an investigation

The story of the former director was very shaky. He stated that he was not looking for a purchaser himself, but that someone approached him and that he even had to be convinced to sell. Nonetheless, he did not inquire into the background of the purchaser and that was strange. If he would have done this, he would have found out fairly quickly that the purchaser was responsible for a large number of bankruptcies. He furthermore stated that he could rely on the continuity of the company because the purchaser would “hit the ground running”. This was clearly not the case because the company was stripped with the transfer.

Obligation to investigate new director
The Court of Appeals clearly stated that it could be expected from the former director (also in view of the interests of the creditors of the company) that he would at least investigate the business background, financial solvency, and personal integrity of the person to whom he wanted to transfer the management and shares of the company. Because the former director did not do this, there was manifest improper management by him.

Former director liable for debt with transfer

The Court of Appeal reduced the compensation to 50% of the shortfall of the assets, because this amount was approximately equal to the amount of debt that existed at the time of the transfer. Due to this reduction, the former director does not have carry the debt incurred during the management by the purchaser.

Civil-law director disqualification

It is easier to prevent these kinds of cases now. After all, since 1 July 2016, it is possible to demand a director disqualification with respect to bankruptcy frauds or directors who performed improperly. As a result, directors who created a mess cannot be a director temporarily. The Chamber of Commerce keeps a public black list of these directors. So make sure that you sufficiently investigate the business and financial background of potential successors. The Chamber of Commerce list can help you with this.

Do you want more information about the director disqualification? Contact us!

Mignon Meermans
Mignon Meermans

Articles by Mignon Meermans

Send us a message

If you have questions, please use the form below. We will contact you as soon as possible.