Contracting party unclear? Check the Commercial Register!

When doing business with a company for the first time, it is advisable to check the Commercial Register to see what form of enterprise conducts the business activities, whether this is a private limited company (BV), a sole trader or possibly a general partnership (VOF). You then know exactly who you are dealing with. And it can prevent summoning the wrong party in a business dispute. Dutch corporate lawyer Thomas van Vugt, specializing in debt collection disputes, discusses a recent ruling where this was the case.

Dutch general partnership (VOF) terminated; limited incorporated

In this case the respondents are the former partners of the general partnership Renovak. Renovak had a contracting business. The general partnership was terminated in July 2012. A legal entity under foreign law was then incorporated, called ‘Renovak I’. Renovak I’s business had the same nature as that of Renovak. The former partners of the general partnership were also closely involved in Renovak I.

Claim: compensation for damages from former partners

The claimant in this case was a real estate company that had granted an order to Renovak (general partnership) for construction work. This cooperation went well, because at the end of 2012 the client and Renovak concluded two new building contracts. This time the client was not so pleased with the quality of the work. Because of this construction dispute he started proceedings against the former partners in which he claimed damages compensation. According to the client, he had concluded the two building contracts with the general partnership. The court dismissed the claims.

Contract with general partnership or with BV/Ltd?

Dutch law of civil proceedings has the principle that investigation is conducted in two instances; any party is entitled to have the case heard again in appeal by a higher court. The appeals procedure focused on the issue of whether the client concluded the contracts with the general partnership or with the legal entity Renovak I. This issue is relevant to determine liability. After all, a general partnership does not have separate capital, which means that the partners are jointly and severally liable for the debts of the general partnership. In case of a legal entity with separate capital (such as a private or public limited company, or a foreign Ltd.) in principle only the legal entity is liable, not the managing directors or other involved parties.

Court of Appeal: Renovak I is the proper contracting party

The Court of Appeal found that the building contracts were concluded well over five months after Renovak was terminated and had been deregistered from the Commercial Register. The contracts as well as in the quotations, both in the text of the header and the footer, specify ‘Renovak I’, and there is an explicit reference to the (new) registration in the Commercial Register. According to the Court of Appeal, these facts justify the conclusion that the building contracts were concluded between the client and Renovak I. The fact that Renovak I also uses the designation ‘Maintenance Company Renovak’, just like the general partnership, does not mitigate this conclusion. There were no special circumstances to assume directors’ and officers’ liability. The claims of the client against the former partners were therefore again dismissed.

AMS Lawyers: debt collection lawyers

This ruling is a proper application of the law. But is it consistent with daily practice? In daily trade practice contracting parties that have worked together before will not check the Commercial Register each time to see whether there have been any changes in the form of the enterprise. Do so anyway, is the advice to be taken from this ruling. In any case compare the registration numbers from previous and later contracts. It is standard procedure that a business that makes such a change informs its business contacts in writing. But, as is shown here, this is not an obligation.