Potential director liability in bankruptcy: the importance of proper records

The trustee in a bankruptcy case claimed payments from directors A and B for unpaid current account relationships between the bankrupt BV and the directors. In addition, they were attributed liability for the estate deficit. The court ruled that it was not sufficient for the trustee to merely refer to the BV’s administration, which was simultaneously qualified as incomplete and defective.

The directors succeeded in showing that the bankruptcy was caused by factors other than faulty administration. Because the trustee did not convincingly prove otherwise, the court ruled that the directors were not personally liable for the estate shortfall. This case illustrates the importance of proper administration and the risks to directors when it is defective.

What happens when the receiver bases a claim on an administration that he himself qualifies as defective?

This question was recently answered by the Court of Appeal of Den Bosch in a case where directors were sued in the bankruptcy of a company.

Facts: bankruptcy and claims of the receiver

Directors A and B were shareholders and directors of Y BV through their personal holding companies. Y BV was in turn the sole shareholder and director of X BV. Both companies filed for bankruptcy in 2020. The trustee claimed payments from A and B for the outstanding current account relationships between Y BV and the directors, and also sued them for the estate deficit.

Initially, the court rejected the trustee’s claims. The trustee appealed this judgment.

Appeal: the current account claims and faulty administration

On appeal, the trustee claimed that current account claims existed from Y BV against the directors, and based its claim on the company’s records. The directors disputed this, as they considered the records to be incorrect, and stated that the claims were based on erroneous entries of management fees.

The directors stated that they only discovered to the trustee that a current account debt to Y BV existed. Had they known this earlier, they would have rectified it before filing for bankruptcy.

The court ruled that the directors were indeed not aware of the current account relationships until later. The trustee had not provided sufficient evidence that these claims actually existed and were not an administrative error.

Director’s liability: presumption of proof of improper administration

The court confirmed that the company’s administration was deficient. The directors had not complied with their accounting obligation and had not published the financial statements on time. This established the presumption of improper management under Article 2:248 of the Dutch Civil Code. The result was a presumption that this improper performance of duties was a major cause of the bankruptcy. If this presumption were to stand, the directors would be liable for the entire deficit in the bankrupt company’s estate.

However, the directors succeeded in rebutting this presumption by showing that other circumstances (such as the corona measures and high audit fees) were a greater cause of the bankruptcy. The trustee failed to convincingly prove otherwise.

Conclusion

What makes this case special is that, on the one hand, the trustee used Y BV’s records to support his claims, while, on the other hand, he classified the same records as defective to support his other claims. Nevertheless, the directors successfully managed to defend themselves against both claims.

This case highlights how important it is for directors to keep accurate records and the risks of faulty records for directors. As previous rulings have also shown, it is not always easy for directors to rebut the presumption of mismanagement.

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