Tax & Legal 2 September, 2024

Attention directors of Dutch legal entities: Important new case law!  

Zakendoen in Nederland.
Crowe Peak/ Knowledge Hub/ Tax & Legal/

Attention directors of Dutch legal entities: Important new case law!  

Personal liability due to inadequate transaction documentation is a real risk in the Netherlands 

A recent ruling by the Amsterdam District Court highlights the critical importance of maintaining thorough records, especially when dealing with intercompany transactions between Dutch legal entities. The court held the directors of a bankrupt Dutch company personally liable for a bankruptcy deficit exceeding 4 million euros, due to their failure to comply with the statutory duty of administration as mandated under Dutch law. This decision clearly demonstrates that personal liability for directors is not a distant concern; inadequate documentation of transactions can lead to significant financial consequences, even impacting on your personal assets. If you are a director of a company and need advice on the scope of your responsibilities or the requirements of the Dutch statutory duty of administration, our legal experts are ready to assist. Contact us, or read on to learn more about this obligation and the associated risks of personal liability under Dutch law. 

Court ruling on statutory duty of administration and personal liability 

In a recent case (Amsterdam District Court, July 24, 2024), the directors of a bankrupt Dutch entity were held personally liable for a deficit exceeding 4 million euros. The court determined that this liability arose directly from the failure to adequately document essential intercompany transactions. For example, there was a lack of documentation regarding agreements for the secondment and lending of staff between group companies. This failure resulted in a breach of the Dutch statutory duty of administration, which is governed by Article 2:10 of the Dutch Civil Code. 

Dutch statutory duty of administration 

Under Dutch law, the statutory duty of administration requires the board of a legal entity to maintain records that provide continuous insight into the rights and obligations of the entity. In this case, the administration failed to meet this requirement. There were no invoices, no documented agreements, and the liquidator had no access to the underlying documents supporting the transactions between the entities. Without written contracts, the group companies could not enforce payments from one another. The court concluded that this was a clear violation of the statutory duty of administration, leading to a finding of mismanagement. When such mismanagement is deemed a significant cause of bankruptcy, as it was in this case, under Dutch law, directors can be held personally liable for the shortfall in the bankruptcy estate. Although directors can provide counterevidence showing that other factors led to the bankruptcy, the directors in this case were unable to do so, resulting in their personal liability. 

This is why it is crucial to seek Dutch law advice  

This recent ruling is a reminder that failing to adequately document intercompany transactions can indeed put directors’ personal assets at risk, especially under Dutch law governing corporate insolvencies. However, personal liability can easily be avoided by paying careful attention to the legal documentation of agreements within a group of companies. For any director, it is essential to proactively seek legal advice on the statutory duty of administration and corporate governance, particularly when the company is still in a healthy state. Our experienced legal team is ready to help you implement the necessary measures and ensure that your organization’s documentation is in order. Contact Joachim Eendebak directly for a personal consultation or legal advice tailored to your needs under Dutch law. 

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