Liability of Supervisory Board Members

When does Internal liability arise?

Norm

It is the supervisory board’s duty to supervise the executive board and the general course of business in the company/organization. A supervisory director body of a limited company or association that supervises the executive policy of the legal person
» Meer over supervisory director supervisory director can be held personally liable if he/she has manifestly fulfilled his/her supervisory duties improperly and he/she can be deemed seriously culpable. It is regarded as manifestly improper fulfilment of duties when no reasonable supervisory director would have acted in such a manner in the same circumstances.

Acting contrary to the articles of association A document, drawn up when a Dutch company or legal person is set up, and which regulates the operations of the company and defines its purpose.
» Meer over articles of association Articles of Association, regulations, or a sector/company code of conduct are important grounds for liability. In particular, when these rules are intended to prevent the occurrence of the risk or damage in question.

Joint and several liability

The point of departure is that all members of a supervisory board are liable when the supervisory board has not fulfilled its supervisory duties properly. This means that every supervisory director body of a limited company or association that supervises the executive policy of the legal person
» Meer over supervisory director supervisory board member can be held liable for the total amount of damage.

Exculpation

A supervisory board member is not liable if he/she cannot be deemed seriously culpable and he/she has not been negligent in taking measures to avert the consequences of the improper supervision. He/she will have to demonstrate that himself/herself.

When can a supervisory director be held liable for a deficit in the event of bankruptcy (2:248 of the Dutch Civil Code)?

Norm

The norm for liability for improper supervision in the event of bankruptcy is comparable to the internal director’s liability for improper supervision. A bankruptcy trustee often invokes both provisions. It must first be demonstrated that improper management has taken place before improper supervision can be established.

Bankruptcy deficit

When it is plausible that improper supervision was an important factor in the bankruptcy, each supervisory director is liable for the whole bankruptcy deficit. This as far as an exculpatory defence was not successful.

Record keeping obligation

As is the case for executive board members, a presumption of evidence applies in this case. When the company’s financial administration is inadequate, or the annual accounts have not been filed timely then improper management/supervision is established and it is presumed that this was an important cause of the bankruptcy. The supervisory board itself is not responsible for the financial administration but it must supervise that the executive board fulfils its financial administration / record keeping obligation.

For the financial administration / record keeping obligation as well as for other important matters in connection with the business operations, the supervisory director is dependent on the information provided by the executive board. However, this does not mean that the supervisory director can just sit back. Supervisory directors are expected to take a proactive approach, certainly where this concerns important topics such as finance and, for example, risk management and control. When there is a reason for this, he/she must request additional information, provide advice to the executive board and also take measures if necessary. This could constitute, for example, the suspension of an executive director.

When does liability vis-à-vis third parties arise?

Under certain circumstances, the supervisory board or a supervisory director can be held liable for the damage that a third party suffers as a consequence of his/her unlawful acts. For example, when this third party has relied on a misleading representation of the company’s state of affairs in the filed annual accounts and this has resulted in damage. The threshold is also high for liability vis-à-vis third parties and the supervisory director must also be deemed seriously culpable.

Other liability issues

When a supervisory director performs executive duties, any possible liability will be assessed according to the norm that applies to executive board members. In general, the performance of executive duties will lead to liability sooner than the performance of supervisory duties. It is also (theoretically) possible that someone who is not a supervisory director but who has acted in such a manner can be held liable for improper supervision. However, such a ‘pseudo’ supervisory director being comparable to an ‘actual’ executive board member is exceptional.

In view of the increased risk of being held liable as a supervisory director, many companies, but also associations and foundations, conclude directors’ liability insurance for supervisory and executive board members. This insurance not only reimburses damage claims but also covers the costs of defence against such claims (with the exception of intentional fraud, etc.).

Since 1 July 2021: The Management and Supervision of Legal Entities Act (Wet Bestuur en Toezicht Rechtspersonen, WBTR)

Until 1 July 2021, the rules for improper supervision did not apply directly to the supervisory directors of an association, foundation, cooperative or mutual insurance company. With the introduction of the WBTR as of 1 July 2021 the legal provisions regarding liability for improper supervision have now also largely become applicable to these other entities. The presumption of evidence in the event of bankruptcy already applied to ‘commercial’ associations and foundations who operate a business and are therefore liable for corporate income tax. Since 1 July 2021, the presumption of evidence also applies to semi-public institutions that are obliged to publish annual accounts due to sector-specific regulations. This concerns, for example, housing corporations or organizations in the healthcare, education, and pension sector. This presumption of evidence does not apply to a ‘regular’ foundation or association, for example, a sports club or music school and a supervisory director will not be held liable.