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Published on: 28 April 2016

You are also liable as a director of a foreign private company with limited liability

The Court of Appeal of Leeuwarden issued a ruling with respect to the liability with a foreign company, which eliminates a way out. Normally, a director of a company in the Netherlands can be held liable for the debt of the company. Ever since the ruling this also applies to a foreign company. 
In addition to the private company with limited liability, the director of the private company with limited liability can also be held liable in some cases based on directors’ and officers’ liability. Often, the private person who is the director of the managing company has to be held liable. This often leads to problems if the managing company is a foreign company. Then, that liability has to be assessed under foreign law. A recent ruling stipulated that this does not apply to the so-called external liability towards creditors.

Liability of director

The board is responsible for the day-to-day management within the company. If the director performs his duties improperly, the director runs the risk that the company itself or third parties will hold him liable for the damages resulting from his improper acts. Directors could therefore have to deal with internal as well as external directors’ and officers’ liability. Internal liability relates to the private company with limited liability itself, and external liability relates to creditors.
If the director is a company itself, the directors of that company can be held jointly and severally liable as well.

Foreign company as director

This could be different if the director is a foreign company. The director of that foreign company cannot be held liable just like that. After all, such a claim has to be assessed under the law of the country where the foreign company is established. We call this the so-called internal affairs doctrine. If that law does not have a similar stipulation as our law, one cannot “break through” to the director of the foreign legal entity. This why it is sometimes recommended to appoint a foreign company as a director in order to limit the risks of directors’ and officers’ liability.

External liability (towards normal creditors)

In addition to the internal liability it does occur sometimes that a third party, such as a creditor, customer or supplier, or the tax authorities holds a director liable. A creditor will base his claim on unlawful acts of the director. The rules for applicable law with an unlawful act could lead to the applicability of Dutch law, even it it concerns a director of a foreign company.
That was the case in a recent ruling of the Court of Appeal of Arnhem-Leeuwarden in which a director of an English company was held liable for damages from an unlawful act. The director of the English limited had left a debt of the limited unpaid and the limited did not provide any recovery. The judge ruled that Dutch law applied to the claim. The acts of the director of the English Limited are assessed under Dutch (company) law this way (after all).

Articles by Mignon de Vries

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