Directors liability in Limited Liability Companies in case of bankruptcy
Managers are people who make things happen, people with a hands-on mentality. They commit themselves to an enterprise and when things go wrong, the manager can risk personal liability for those mistakes. This is a source of much uncertainty for many entrepreneurs, but also for many board members of societal organisations.
Our attorneys assist managers of limited liability companies in order to prevent damages from liability claims on a regular basis. They also assist with liability claims in and outside the court room. Many of such cases are settled by countering the accusations or by settling with e.g. a receiver.
Various grounds for board liability are, a.o.:
When a manager makes a commitment on behalf of the corporation with the knowledge or when he should have known or understood that the corporation could not meet up with the commitment, the manager risks personal liability. This also applies to situations when the corporation cannot follow through on this commitment within a reasonable period. In such a situation, the manager commits a wrongful act against the other party. The crucial factor in this respect is the ‘knowledge’ of the manager at the time of the commitment. This is laid down in the so-called ‘Beklamel-norm’, derived from case law of the Supreme Court of the Netherlands.
Collection of State Taxes Act Law
Wage tax & sales tax
Case law prescribes that a corporation must notify the tax authorities within two weeks after the tax assessment notice has been received on its incapability to pay wage or sales taxes. When no notification is issued this incapability is presumed to be the result of mismanagement. This presumption can only be refuted by the manager who can prove that the untimely notification cannot be blamed on him. To sum up: notify the tax authorities when the corporation is not able to pay, because otherwise you have to pay those authorities yourself!
Dilemma: The tax authorities sometimes chooses to apply for bankruptcy when a notification of insolvency is issued. Not issuing a notification to the tax authorities however is also punished severely. Lesson: do not use the tax authorities as a bank when you encounter payment problems. This can save you quite some trouble. When a bankruptcy seems likely, first pay the tax authorities.
When a manager knows or should know that the corporate tax cannot be satisfied, the manager should think of applying for bankruptcy on behalf of the company. Otherwise personal liability could be the result.
Mismanagement against the corporation
Whether certain acts can juridically constitute mismanagement is regularly estimated wrong by managers. Mismanagement is only established when no reasonably acting manager, capable of fulfilling the tasks, would have acted the way this specific manager has done. Examples of mismanagement are conduct in violation of the corporation goal or an illegitimate transfer of assets.
Read more on Directors liability in the case of banruptcy.