The responsibility of a company’s director after bankruptcy is declared

When bankruptcy is declared, a trustee and a bankruptcy judge are appointed. Much has been written about the director’s potential liability for actions before or during the bankruptcy. In short, this boils down to the following:

Liability to the trustee

The trustee can, pursuant to Article 2:248 of the Dutch Civil Code (for private limited companies) or Article 2:138 of the Dutch Civil Code (for public limited companies), hold each director jointly and severally liable for the remaining deficit in the bankruptcy estate, i.e., the debts minus any remaining assets, including the costs of the bankruptcy.

To this end, the trustee must demonstrate two requirements:

1. Manifestly improper management (insufficient quality or seriously culpable conduct) for three years prior to the bankruptcy.
2. That this management was a significant cause of the bankruptcy.

A presumption of proof applies if, for example, the financial administration was not in order or the annual accounts were not filed on time (within 12–13 months after the financial year), unless the director refutes this presumption.

An individual director can exonerate themselves by demonstrating that:

• the manifestly improper management was not their fault, and
• they were not negligent in taking measures to mitigate the consequences.

Liability to Third Parties (Creditors)

A director can also be held liable by a creditor, independently of the trustee, for example, on the basis of an unlawful act (Article 6:162 of the Dutch Civil Code). This can happen if, for example, a director:

• -consciously promised or acted knowing or should have known that the company could no longer meet its obligations,
• published misleading annual accounts,
• embezzled funds or otherwise acted seriously culpably to the detriment of creditors.

In that case, an individual creditor can approach the director directly, without the intervention of the trustee.

But now the key question: Can a director be held liable for the actions of the trustee? No — the trustee then conducts the statutory winding-up. Directors are not liable for the actions of the trustee himself, but they may be liable for their own actions before and during the bankruptcy that led to a deficit against which the trustee subsequently takes action.

In summary:

After bankruptcy, the director loses their management duties but remains responsible for their own actions before the bankruptcy. The trustee can hold them liable for manifestly improper management that significantly contributed to the bankruptcy and thus caused the deficit. Third parties (creditors) can also claim damages from the director if unlawful conduct is involved. The trustee’s actions themselves are not the director’s liability: this concerns responsibility before the bankruptcy.

Practical tips for directors

• Always keep your administration and annual accounts in order (comply with accounting and publication requirements).
• Carefully document decision-making and take appropriate action as soon as risks become apparent.
• If you are held liable: gather evidence that management shortcomings are not your fault and that you have taken measures to prevent damage.

Questions?

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