Directors liability in case of bankruptcy

A receiver can hold a director (or a de facto manager) liable for mismanagement on the grounds of art. 2:248 DCC (Dutch Civil Code) and/or 2:9 DCC and/or 2:10 DCC. When mismanagement can be established, or when it can be assumed that this was the most probable cause of a bankruptcy, a director can be hold personally liable for the full debt of the bankruptcy!

This personal liability can be established in the case of a non-timely publication of a financial statement of a LLC. Such a duty is prescribed by law and entails the deposit of a financial statement at the trade register of the chamber of commerce, before the time limit of 13 months after the termination of the fiscal year expires. When the LLC does not comply with this regulation and it goes bankrupt, the law allows the receiver to assume and establish mismanagement, with the result of personal liability for the director.

Presumption against the director

The legislator has assisted the receiver by means of presumptions in the law. When such a presumption applies, the director is in principle severally liable for the full deficit of the bankruptcy. Art. 2:248, paragraph 2 DCC entails the aforementioned case concerning the non-performance of the publication duty, which can be derived from art. 2:394 DCC, resulting in mismanagement, derived from art. 2:10 DCC. An unimportant default will not be taken into account, meaning the following: you can publish the financial statement a little bit later, but the later it is published, the stricter the court will be. Furthermore the transparency with regards to the rights and duties of the corporation is important, where an incomplete pictures improves the chance on liability. 

In conclusion, it is very important that the director complies with the duty of administration. The director needs to realise that non-compliance with this duty, which can be derived from art. 2:10 DCC, can be criminally punishable in a bankruptcy.

Guarantee

Are you considering, as director, to file for bankruptcy on behalf of the corporation? Verify first whether there are any personal guarantees or guarantors. Mostly these are banks, but it can also be your own management LLC! This is because a bank normally asks for a personal guarantee as an extra security at the provision of the corporate credit. There also exists a scheme, the so-called guarantee credit BMKB (MKB is the Dutch version of SME’s), in which the government guarantees for the corporate credits of SME’s. We advise you to consult your bank on this possibility, prior to a conclusion of a corporate credit. Reluctance with relation to personal guarantees is advisable.

Refinancing

At the moment when liability to the tax authorities exists and there is a guarantor or there is a guarantee from a directorsowner to the bank, this can militate against a bankruptcy. Get into a dialogue with your bank. The bank can cooperate with a refinancing, based on pragmatic grounds or based on the good chances of the relaunch resulting in future profits for the bank. You can also offer to redeem your debts against a certain percentage with the help of the bank.
Henpecked husband article

It is also important to keep art. 1:88 DCC in the back of your mind. This article entails the so-called henpecked husband article. This article implies that a spouse cannot guarantee without the consent of his or her partner. This article has been put in the law in order to protect a family. When the husband or wife did not sign, the guarantee can be quashed in the majority of the cases.

When you have questions concerning liabilities or guarantees with a bankrupt associate, our attorneys have solid experience with bankruptcy law and advise you with pleasure. You can contact us without any further obligations.