Joint and several liability for board members of associations and foundations from 1 July 2021

From 1 July 2021, associations and foundations have to comply with the new Management and Supervision (Legal Entities) Act (Dutch WBTR). In this blog, liability-law lawyer Sjoerd Yntema discusses the consequences of this act with regard to the liability of board members of associations and foundations.

Improvement of management and supervision

Because of a number of incidents involving inter alia fraud, self-enrichment of directors and financial problems, the Ministry of Justice and Security felt that the management and supervision of foundations and associations, but also of cooperatives and mutual benefit associations, needed to be improved. This is why the WBTR was introduced.

Alignment with existing rules for public and private limited companies

This new act aims for a better alignment with the rules on management and supervision that are already in place and that have applied for the public and private limited companies in the Netherlands for a long time. 

Directors’ and officers’ liability in bankruptcy

With the entry into force of the WBTR, higher requirements are set for directors and supervisors. From 1 July 2021, directors can be held jointly and severally liable for the deficit in the bankruptcy of their association, foundation, cooperative, and mutual benefit association as a result of an improper performance of their duties when it can be deemed plausible that this improper performance of duties is a major cause of the bankruptcy.

Improper performance of duties

There is an improper performance of duties if, for example, the financial statements are not filed, agreements are entered into of which the board of directors knew that they could not be performed, and/or if the accounts and records are incorrect.

Evidentiary presumption

The act also includes the evidentiary presumption that an improper performance of duties which involves, briefly put, not having the annual accounts and/or the administrative records in order is presumed to be a major cause of the bankruptcy. 

Exception for small foundations and associations

However, in the case of foundations and associations that are not subject to corporation tax and that do not have to publish financial statements either (the non-commercial foundations and associations), it will not be easy for the trustee in bankruptcy to hold the director(s) liable for the deficit in the bankruptcy, as the evidentiary presumption does not apply in that case.