Contributed By Florent (Amsterdam - HQ)
The board of directors owes fiduciary duties to the company (including its subsidiaries) and its stakeholders, such as the shareholders, creditors, employees, customers, suppliers and other parties. In the performance of their duties, the directors must focus their attention on the interests of the company and of the enterprise connected with it.
Each director is responsible towards the company for the proper performance of the tasks assigned to him or her. All duties of directors that have not been assigned to one or more directors by or pursuant to law, or the articles of incorporation, are the joint responsibility and fall under the duties of the board of directors. Each director is responsible for the general conduct of the business. A director is liable for the full consequences of an improper performance of duties, unless – also in regard to the tasks assigned to the other directors – no material reproach can be made to him or her personally, and he or she has not failed to take steps to prevent the consequences of mismanagement.
In the case of bankruptcy, a director may be held liable, amongst others reasons, if he or she has manifestly improperly performed his or her duties, and if it is plausible that such improper performance substantially contributed to the company's bankruptcy. This is the case if no reasonable director would have acted similarly under the circumstances. If that threshold is met, each director may be held jointly and severally liable for the shortfall in the bankrupt estate. The bankruptcy trustee is exclusively authorised to pursue this claim, and bears the burden of proof. However, the burden of proof is materially reversed if the board of directors has failed to keep proper records or to file the company's annual accounts in a timely manner. The board of directors can rebut this presumption by sufficiently demonstrating that another entirely different circumstance was the primary cause of the bankruptcy.
Under certain circumstances, a director may be held liable towards a third party, such as a creditor or the bankruptcy trustee, on the basis of a wrongful act (onrechtmatige daad). Such liability only occurs if a director can be held seriously culpable, ie, where he or she is personally at fault. Examples of liability on the basis of a wrongful act include entering into an agreement on behalf of the company if the director knew, or should have understood, that the company would not be able to meet its obligations under such agreement and that the creditor would not be able to recoup its losses from the company. This means that directors of financially distressed companies should be (extra) careful when entering into new agreements that result in new obligations for the company. A director could also be liable to the bankrupt estate for the selective (non-)payment (selectieve betaling) of creditors when either bankruptcy is unavoidable or the company ceases its activities, and the company is not able to fulfil its obligations vis-à-vis its creditors.
Upon the request of the bankruptcy trustee or the public prosecutor, the court may impose a ban (bestuursverbod) for a period up to five years on a (shadow) director who has committed bankruptcy fraud or is guilty of misconduct. Transactions that are prejudicial to the rights of creditors, or that are fraudulent, may lead to criminal charges against the directors of the company.
The bankruptcy trustee, as well as individual creditors, may assert direct fiduciary breach claims against the directors. According to case law, legal proceedings initiated by the bankruptcy trustee take priority in the event that both the bankruptcy trustee and an individual creditor start legal proceedings against a director based on the same facts. After these proceedings, the individual creditor may receive a payment out of the bankrupt estate and, in the case of remaining damages, may assert claims for such remaining damages directly against the director. The bankruptcy trustee is only entitled to pursue a claim on behalf of the entire body of creditors and not on behalf of a (specific) group of creditors.
Companies can appoint a chief restructuring officer, either as a full (statutory) board member, adviser to the board or consultant. Although such appointments were rare in the past, they are becoming increasingly common, especially in larger restructurings. Often the appointment of a chief restructuring officer takes place on the initiative of the (senior) lender.
Third parties or any of a company's representatives who are acting as if they are a director and are determining or co-determining the day-to-day affairs of the company, are regarded as shadow directors (feitelijk bestuurders) and are exposed to the same liability risks as directors.
In principle, the liability of shareholders is limited to the called-up share capital of the company. However, under specific circumstances, a shareholder may be held liable if he or she has acted as a shadow director. In such situations, the shareholder will be equated with a statutory director and held to the same standards.
The articles of incorporation of the company can impose additional obligations on the shareholders. In addition to this statutory provision, Supreme Court case law shows that, in certain situations, mainly in group structures, the doctrine of piercing the corporate veil is applicable. Examples are (indirect) piercing of the corporate veil in the case of keeping up a facade of solvency or creditworthiness, withdrawal of assets by the parent company in the capacity of creditor of a subsidiary, and withdrawal of assets by the parent company in its capacity as shareholder.
Besides these main categories, case law shows that there are examples of situations in which the parent company has been held liable because of wrongful (tortious) acts. For example, under certain circumstances, setting up and maintaining a business structure in which a separate (subsidiary) legal entity is responsible for all debts but another (subsidiary) legal entity owns all the assets of the company can be unlawful towards creditors that remain unpaid. Also the shareholder may be liable towards the creditors if it encourages or allows the company to selectively pay its debts or selectively leave its debts unpaid, while it is clear that either bankruptcy is unavoidable or the company is about to cease its activities, and it is not able to fulfil its obligations vis-à-vis its creditors.