When can a director be held personally liable?

Dutch corporate law requires that directors of a company (members of the board of directors and supervisory board / (non)-executive directors) manage the company in a proper way. If one or more directors fail to do so, they can be held jointly and severally liable by the company for the damage it suffers as a result. This type of liability is known as “internal directors’ liability” because only the company itself (the other directors or the shareholders) can file a claim against the inadequately performing directors.

Examples of improper behavior of a director include representing the company and entering into a transaction while he has a conflict of interest. This is improper because the director is not authorized to represent the company in this situation. Consequently, he can be held jointly and severally liable by the company for any damage it suffers.

Although the BV has legal personality, one or more of its directors can be held jointly and severally liable towards the company’s creditors. As the company’s creditors are not part of the company, this type of liability is referred to as “external directors’ liability”. The special conditions necessary to establish external directors’ liability are: (1) when the debt was incurred, the director knew or should have known, that the company would not be able to repay the debt and that the creditor would suffer damage as a result and (2) the director has allowed or permitted the company not to perform its obligations. The burden of proof lies with the creditor.

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