Is a director in the Netherlands liable for the unpaid bills of a liquidated private company?

A webshop ordered a large batch of goods from its supplier, even though it was fairly obvious at the time that the company would not be able to pay for the order. Is the director of the webshop responsible and liable, and is he personally at serious fault? Or is it simply a matter of bad luck for the supplier? The Dutch Beklamel norm provides a solution. Dutch corporate lawyer Hidde Reitsma clarifies the ruling.

Webshop Athlete in financial trouble

Webshop Athlete sold sports articles via the internet. Its sole director and shareholder was Ysee Beheer BV (Ysee). B was the director and sole shareholder of Ysee. All online payments relating to Athlete were processed by Ayden. Due to the company’s rapid growth, products were delivered too late, suppliers stopped supplying, orders were cancelled and customers had to be refunded. By November 2017 the company was in real trouble. In view of these uncertainties, Ayden gradually increased the buffer from € 34,000,- to € 870,000.-.

Athlete continues to order goods

Between 15 March and 17 April, Athlete placed orders for Sups (paddle surfboards) with A.C.M. products (ACM) to the amount of € 78,923.70. The bill was never paid. During a special meeting in April, Athlete stated that the company was in financial trouble and that it wanted to convert ACM’s claim into a subordinated loan that would be paid back in 12 instalments (as from 1 January 2019). ACM refused the proposal and invoked a retention of title regarding the supplied Sups. Athlete stated that this was impossible, seeing that all of the Sups had been sold. A liquidation order was issued against Athlete on 2 July 2018.

Indirect director liable for losses in the Netherlands?

ACM held B  – as the director of Athlete via Ysee – personally liable (Section 6:162 of the Dutch Civil Code) for the losses incurred on account of Athlete’s breach of contract. ACM argued that the Dutch Beklamel norm should be applied, seeing that B knew or should have suspected that Athlete would not be able to pay for the supplied Sups. B, it was argued, had acted so negligently that he was personally at serious fault. The remarkably large order had been placed early in the season, and the Sups had been sold quickly and at dumping prices without ACM being paid from the proceeds.

Lawyer denies director’s and officer’s liability

B stated that the director’s and officer’s liability (Section 2:11 Dutch Civil Code) only applied to Ysee as the director of Athlete, and not to B personally. He believed that the order could be paid for, given the healthy financial situation of Athlete at the time when the order was placed. The order was no different than previous orders and the products had not been sold at dumping prices. Finally, B’s lawyer also argued that B could be held personally liable, given that B, in his capacity as the director of Ysee, was not a director of Athlete and was not aware of the order in question.

Director responsible and liable?

The Dutch court ruled that Section 2:11 of the Dutch Civil Code should also be applied to B, who could not evade liability on account of the fact that he was an indirect director (via Ysee). Liability furthermore required that serious blame could be attributed to B. The court deemed it irrelevant that B did not hold a management position, that he had not been involved in the order and that he therefore did not know that payment could not be made. Being the indirect director, B had been responsible for the general (financial) state of affairs of the company.

Is there a question of serious blame?

Athlete had financial problems which – in part due to negative media attention and the fact that Ayden had repeatedly increased the buffer – continued to increase in severity. B had known about this but had continued to place new orders regardless. The Sups were subsequently sold at reduced prices in order to make money quickly and without ACM being paid from the proceeds. Another consideration was that Athlete – soon after ACM had supplied the Sups – had announced that no payment could be made. Athlete and B must have known about this before the order was placed.

Director personally liable

Based on these facts, the court concluded that B knew or should have reasonably suspected that Athlete would not be able to pay for the order placed with ACM. Serious blame could therefore be attributed to B personally. He was subsequently ordered to pay for the Sups.

Lawyer’s advice in the event of director’s liability in the Netherlands

As a director of a company, you have to at all times be familiar with the affairs of your organisation. If things have not been going too well for a number of successive years, then you cannot hide behind another limited company in its capacity as the actual director or state that you had no idea what was going on. The Beklamel norm also applies to indirect directors. This is good to know if you are faced with unpaid invoices and a director who states that he is not responsible. AMS Advocaten will be more than happy to advise you on the liability of directors.