Directors liable for the looting of the bank account of a Dutch private limited company?

In the Netherlands, a company will in principle be liable for its inability to meet its obligations. The situation is different if the directors actively performed acts knowing that this would limit the company’s scope for redress. In such matters, there may be a case of directors’ and officers’ liability in the Netherlands. Dutch Corporate Law Lawyer Hidde Reitsma explains.

Licence fee advances

In a recent case, Company X and Company Y entered into a framework agreement in connection with a proposed cooperation. Part of this cooperation was a possible licence agreement. The parties agreed that Company X would start paying a monthly licence fee in anticipation of this licence agreement. If the licence would not be established, the advance payments would be refunded to Company X. This was explicitly included in the agreement.

Lawyer held directors liable

Company X subsequently made advance payments to Company Y totalling €1,639,550. A license was never established. But when Company X requested its refund from the other party, Company Y appeared not to provide an opportunity for redress. In fact, the balance of the bank account where all the advances were paid was €0.00! Company X’s lawyer held the two directors of Company Y personally liable.

Requirements for directors’ and officers’ liability in the Netherlands

In the Netherlands, directors’ and officers’ liability is subject to the requirement that the director can be personally blamed for serious misconduct. In this case, Company X had been harmed because its claim had not been paid and turned out to be irrecoverable. In this case, a director may be liable if such he (i) had acted on the company’s behalf or (ii) had caused or permitted the company to fail to comply with its statutory or contractual obligations. This is called the Beklamel criterion.

Serious personal blame

In this case, the Court of Appeal was of the opinion that there was the second situation in that the actions of the directors towards Company X had been so careless that they could be personally blamed for this serious instance of misconduct. After all, the directors knew that by clearing the bank account, Company Y would not be able to fulfil its obligation to refund the advance payments and would not be able to offer any redress.

Dutch Beklamel criterion for directors’ liability

In addition, the directors had not given a statement as to where the money is now. They had actively diverted the money. The Court of Appeal, therefore, held the directors liable for Company X’s losses, which are in any case equal to the amount that Company Y should have refunded.