In times of financial difficulties, corporate executives face complex decisions that not only affect the survival of the company but can also have far-reaching personal consequences. When a company goes bankrupt, the trustee can hold directors personally liable for the deficit in the bankruptcy. This can have a major impact on your personal asset position and reputation. At Guldemond Advocaten, we understand the challenges and risks involved. With more than 25 years of experience, we guide administrators through this complex legal landscape, keeping in mind both legal and human aspects.

The legal bases for director liability.

Director liability in bankruptcy is based on several legal bases. It is essential for directors to know these bases and understand the resulting risks.

1. Internal liability

As a director, you are liable to the legal entity for the proper performance of your duties. If there is mismanagement, you may be held liable for damages suffered by the company. In case of bankruptcy, the trustee can bring this claim on behalf of the estate. Important aspects here are:

• Serious culpability: there must be a serious culpable act or omission.
• Joint and several liability: directors are jointly and severally liable for the entire deficit.
• Disculpation: you can disculpate if you can prove that you are not seriously at fault and that you took sufficient measures to prevent damage.
• Division of duties: the internal division of duties within the board may affect your liability, but does not relieve you of your legal obligations.

2. External liability in bankruptcy

The two main provisions for directors’ liability in bankruptcy state that each director is jointly and severally liable for the deficit in the bankruptcy if the board has manifestly improperly performed its duties and is likely to be a major cause of the bankruptcy.

Two key evidentiary presumptions strengthen the trustee’s position:

• Duty of administration: If the board has not complied with the duty to keep records, it is established that there has been manifestly improper management and is suspected to be a major cause of the bankruptcy.
• Financial statement disclosure requirement: Failure to timely file financial statements leads to same presumption of evidence

3. Unlawful act

Besides internal and external liability, a director can also be held liable in tort, especially by individual creditors. The so-called Beklamel-norm, named after an important Supreme Court ruling, states that a director may be personally liable if he enters into obligations on behalf of the company when he knows or should reasonably understand that the company will not be able to fulfil them and will have no recourse. Examples where the Beklamel-norm may come into play:

• Entering into new commitments or contracts when you know the company cannot meet its payment obligations.
• Continuing loss-making operations without a realistic recovery plan.
• Making payments to certain creditors to the detriment of others (selective payment).

Manifestly Improper Administration: What Does That Mean?

The concept of manifestly improper management is a weighty criterion. It must involve acts or omissions that no reasonably thinking director would have done under the same circumstances. This goes beyond mere errors or mistakes; it must involve serious culpable behaviour. Examples of manifestly improper management include:

• Failure to keep proper records: failure to keep proper and complete records makes it impossible to understand the financial position of the company.
• Failure to file financial statements on time: this is not only a legal obligation, but also an important signal to stakeholders about the health of the company.
• Irresponsible financial management: such as taking on commitments that you know the company cannot meet, or withdrawing funds from the company.
• Selective payment: favoring certain creditors over others without justifiable cause.
• Neglect of tax obligations: failure to pay taxes and social security contributions can lead to personal liability.

Defense against liability

When you as a director are faced with a liability claim by the trustee, it is very important to act quickly and appropriately. Several defenses are possible to contest your liability.

1. Disculpation

You can prove that the apparent mismanagement was not your fault and that you were not negligent in taking steps to avert its consequences. This defense requires you to be able to prove that you:

• No personal reproach bears
• Timely warned of the risks
• Actively tried to prevent or solve problems
• Possibly protested decisions within the board

2. External causes

It is possible to argue that the bankruptcy was caused by external factors beyond your control, such as:

• Sudden market turns or economic crises
• Unforeseen losses due to third-party fraud
• The loss of an important customer or supplier
• Government measures that make business operations impossible

3. Contestation of manifestly improper management.

You can argue that your actions as a director were defensible within the circumstances. This implies that you:

• Acted with care on the basis of available information
• Obtained expert advice where necessary
• Made decisions in the interest of the company
• Conducted sound governance despite difficult circumstances

Preventive measures: prevention is better than cure

You can significantly reduce the risk of personal liability by being proactive and making sure your business is sound.

1. Comply with administration and publication requirements.

Maintain proper and up-to-date records that provide insight into the company’s financial position. Publish financial statements on time according to the legal deadlines.

2. Careful decision-making

Document important board decisions and their considerations. Hold regular board meetings and document them in minutes.

3. Timely Intervention in Financial Problems.

Be alert to signs of financial difficulties, such as declining sales, liquidity problems or mounting debts. Take timely action by:

• Preparing realistic recovery plans
• Seeking external financial advice
• Communicating with creditors and other stakeholders

4. Avoiding Selective Payments

Treat creditors equally and avoid favoring certain parties without justified reason. In case of payment problems it is advisable to be transparent and make agreements with creditors.

5. Entering into New Commitments Carefully

Be cautious about taking on new obligations if the financial situation of the company is uncertain. Make a realistic assessment of the possibilities to meet these obligations.

Practical Approach to Liability Claims

If you are approached by a trustee, it is essential to quickly determine a strategic approach. Our lawyers at Guldemond Advocaten start with a thorough analysis of your position:

• Inventory of the Accusations: We investigate the specific accusations made by the curator and the substantiation thereof.
• Documentation Review: We collect and review all relevant documents, such as records, correspondence and minutes.
• Analysis of Causes of Bankruptcy: We identify the factors that led to the bankruptcy and assess your role in it.
• Formulating Defenses: Based on the facts, we determine the best defenses to dispute your liability.
• Assessment of Litigation Risks: We provide a realistic assessment of the opportunities and risks in the event of a potential procedure.

Based on this analysis, we will discuss possible strategies with you. Sometimes, defending yourself in a procedure is the best option; in other cases, a settlement with the trustee may be preferable to avoid lengthy and costly procedures.

Recent Developments and Case Law

The legal field of directors’ liability is constantly evolving. Recent decisions by the Supreme Court and lower courts have an impact on how liability proceedings are conducted and which defences are likely to succeed. Some trends include:

• Enhanced Duty of Reasoning for Curators: The Supreme Court has emphasized that curators must properly substantiate their claims for liability. This offers directors more opportunities to defend themselves effectively.
• Impact of Economic Crises: Special circumstances, such as the corona pandemic, are taken into account by judges in the assessment of directors’ liability. Unforeseen economic headwinds can affect the causality between directors’ actions and the bankruptcy.
• Increased Focus on Governance: Good corporate governance and compliance with governance codes can help limit liability risks.

Why choose Guldemond Advocaten?

Our lawyers combine in-depth knowledge of liability law with years of practical experience in proceedings against trustees and individual creditors. We understand the complexity of these matters and the personal impact that a liability claim can have. Our approach is focused on:

• Personal Guidance: You will receive a permanent team of lawyers who know your situation inside and out and will assist you in every phase of the process.
• Strategic Advice: We think ahead and help you make decisions that strengthen your position and minimize risks.
• Practical Solutions: In addition to legal assistance, we also provide practical advice to improve your business operations and limit future risks.
• Discretion and Integrity: We will handle your case with the utmost confidentiality and integrity, respecting your personal and business interests.

Contact Us for a Confidential Interview

Are you confronted with a possible liability claim by a trustee or do you want preventive advice about your position as a director? Then contact Guldemond Advocaten for a confidential conversation. The sooner we are involved, the better we can protect your position and develop an effective strategy to represent your interests.

Your Partner in Challenging Times

At Guldemond Advocaten, your interests come first. We are here to guide you through the complexity of directors’ liability in bankruptcy, with an eye for both the legal and the human side of the matter. Together we work on a solution that does justice to your situation and enables you to face the future with confidence.