Liability of indirect director

To limit the risk of directors’ and officers’ liability, a so-called two-stage rocket of BVs [Dutch limited liability companies] is set up. In this construction the founder is both a natural person and a director and shareholder of a holding company. The holding company is the director of the operator company and the director and major shareholder (directeur-grootaandeelhouder (hereinafter: DGA)) is the indirect director. However, the Supreme Court of the Netherlands has recently ruled that an indirect director can also be held liable on the ground of an unlawful act.

In this case the operating company was a construction company that went bankrupt.  The DGA determined the policy of the construction company. Shortly before the bankruptcy of the construction company, the DGA arranged for the construction company to pay an amount of almost € 200,000 in management fees to the holding company. When the construction company was no longer able to fulfil its payment obligations, the creditors missed out. The bankruptcy trustee of the construction company held the DGA liable because he believed that the DGA had cooperated in cheating the creditors.

The Supreme Court agreed with the bankruptcy trustee’s reasoning. The indirect director can be accused of serious personal blame if it is established that he knew or should reasonably have understood that the action taken by him with regard to the company would result in it not being able to fulfil its obligations and, moreover, it would not provide sufficient opportunity for recovery of the loss suffered as a result hereof. The indirect director must therefore compensate the loss.