Violation of the administration obligation and director’s liability: AMS explains!

An administrator can hold the director of a bankrupt enterprise liable for the remaining debts of the estate in the event of mismanagement. In principle, it is then up to the administrator to prove that the director of this enterprise is seriously personally culpable. However, this burden of proof is reversed in a few special situations. Based on a recent case, bankruptcy lawyer Hidde Reitsma explains these situations.

Improper performance of management’s task

Article 2:248 of the Dutch Civil Code states that a director is jointly and severally liable for the estate’s debts in the event of bankruptcy. Improper performance of management’s tasks must exist and it must be plausible that this is an important cause of the bankruptcy. Whether or not management has fulfilled its task properly depends on the circumstances. What may be considered improper in a certain case, may just be permissible in another case.

Violation of the administration obligation and publication obligation

However, article 2:248 of the Dutch Civil Code provides for two situations for instances in which – according to the law – there is a prior suspicion that improper fulfilment of the task is an important cause of the bankruptcy: if management has not complied with its administration obligation (or “bookkeeping requirement”) in accordance with article 2:10 of the Civil Code or if it has not complied with its publication obligation according to article 2:394.

Reversal of proof in the event of violation of administration obligation

Violation of the administration obligation is considered to be improper fulfilment of the management task by definition. However, in this situation, it is up to the manager to demonstrate that the bankruptcy was caused by factors other than improper fulfilment of the management task. In the event of violation of the administration obligation, the burden of proof is therefore borne by the management instead of by the administrator. The same goes for violation of the publication obligation. This reversal of proof is inapplicable only if the violation of the administration and/or publication obligation is considered unimportant neglect.

Director is jointly and severally liable?

In a recent case, the administrator charged that the director of the bankrupt enterprise had not complied with his administration obligation. Based on the facts, the court finds that the director had, indeed, not maintained a proper administration. This violation of the administration obligation means that the director had fulfilled his task as a director improperly. And there is therefore the suspicion that improper fulfilment of the task is an important cause of the bankruptcy.

Director’s liability established

The director claims that there are other causes for the bankruptcy. But the court is not convinced. According to the court, all of the director’s arguments show, in essence, that the director did not properly fulfil his task as a director. The director was unable to dispel the proof of suspicion. The court orders the director to pay the debts of the bankrupt estate.

AMS Advocaten for directors’ liability in bankruptcy

The bankruptcy law attorneys at the law firm AMS – as attorneys for directors, but also in the role of administrator – have considerable experience in the area of directors’ liability. Their practical experience as administrators is also extremely valuable for being able to estimate procedural risks. Our attorneys can also assist you in proceedings against the administrator.