A distinction should be made between liability towards the company (internal liability) and liability towards third parties (external liability), including in either case a receiver in bankruptcy acting as their representative. For each of these two situations, only the most common types of liability of directors will be discussed.
In order for liability towards the company for mismanagement to arise, there must be serious negligence on the part of the director. As already stated, a more severe test may be applied in specific cases. As a general rule, the responsibility of the board towards the company is of a collective nature, but each director is also responsible to the company for proper performance of the specific duties assigned to him/her.
If a matter falls within the scope of responsibility of two or more directors, they are jointly and severally liable for mismanagement, unless a director is able to prove that the relevant shortcoming is not attributable to him/her. In order to satisfy this burden of proof, the relevant director must show that he/she was not personally negligent and that he/she did not fail in his/her duty to take action to avoid or prevent the consequences of the mismanagement. Certain important matters are by definition always part of the tasks and duties of each director, including but not limited to the main direction of a company’s policy and its financial management.
If the company is unable to pay certain of its taxes or social premiums, it must notify the relevant authorities of its inability to pay within 14 days after the due date. In the absence of such notification, or if the inability to pay is caused by apparent negligence of the management board, the directors are jointly and severally liable for the relevant taxes and social premiums. Individual directors have the right to exculpate themselves, but in practice exculpation will only be possible in exceptional circumstances. If the company is declared bankrupt, the directors are personally liable for the deficit in bankruptcy if the bankruptcy is to a significant extent caused by the apparent negligence of the management board during a three-year period prior to the date of bankruptcy.
If the company has not kept proper financial records or has not filed its annual accounts with the Dutch Trade Register in a timely manner, i.e. at the latest 12 months after the end of the financial year, there is a binding presumption – which cannot be challenged or proven wrong – that there has been apparent negligence and a further presumption that such apparent negligence has to a significant extent caused the bankruptcy. Directors may be held liable for the company's debts if such improper management (i.e. failing to file the annual accounts timely) has taken place within 3 years prior to the company’s bankruptcy. the company’s bankruptcy. Again, individual directors have the right to exculpate themselves, but in practice exculpation will only be possible in exceptional circumstances. Except in certain combinations of complex and unusual circumstances, current Dutch law does not provide for shareholders’ derivative suits. A breach of the duty of care may give rise to an action by the company or the receiver in bankruptcy against the management board or members thereof for mismanagement.
An important legal basis for liability of the directors towards third parties is tort (“onrechtmatige daad”). Creditors of the company, for example, may hold a director liable on the basis of tort if he/she entered into a transaction on behalf of the company when he/she knew, or reasonably should have known, that the company would not be able to fulfill its obligations under that transaction. Directors may also incur personal liability in the event of environmental pollution, fraudulent transfer of assets, unjustified inequality in the treatment of creditors, erroneous or misleading financial statements, a misleading prospectus or certain breaches of the competition law, for example. Establishing such personal liability for failure by directors to assess the admissibility of dividend distributions is being contemplated.
The distribution of dividends and reserves requires the prior approval of the management board. The management board must refuse approval if it knows or can reasonably foresee that the company will not be able to continue to meet its liabilities after the distribution. The consequence of wrongful approval is joint and several liability of the directors for the deficit caused by the distribution. The recipients of a distribution can be held liable for compensation if they did not act in good faith, meaning if they knew or could have reasonably foreseen that the company would not be able to continue to meet its liabilities after the distribution.
Under Dutch criminal law, a company can commit crimes. The individual who is directly responsible for the criminal behaviour of the company may also commit a crime. Accordingly, members of the management board may, in the event of personal liability for mismanagement under civil law, sometimes also face criminal sanctions.
In specific instances, some form of director’s liability may also arise: (i) in respect of individuals who, without being appointed, effectively manage the company as if they were directors; (ii) for an individual who is the director of a company that is also a director; or (iii) for supervisory directors.