Directors' liability: keep ordering when you know the curtain will come down

In my practice, I regularly have to deal with discussions about obligations that directors have entered into while they knew or should have known that the company would not be able to fulfill these obligations and would have no recourse for them either. In those discussions, it is often difficult to demonstrate exactly when that moment is; at what point does a director have to be (more) careful?

Reference date

A good example of such a situation can be seen in a recent judgment of the Court of Appeal of The Hague ruling that there was directors' liability.

That case involved a director of a hotel who regularly purchased hot meals and cleaning products, among other things, from a supplier but left the invoices unpaid. This while the hotel had a liquidity problem and it was clear that the hotel's environmental permit would end and thus the company's only source of income would dry up. According to the court, the director must therefore have seen that within a foreseeable time after the permit was terminated, the hotel would come to an end. These circumstances mean that the director could be expected to keep an eye on the interests of the hotel's supplier and not order any more from this supplier.

Given the financial situation, the director should have understood that bankruptcy would be unavoidable if the operation had to cease due to the termination of the license and that the hotel would then no longer be able to meet its financial obligations and would also have no recourse for this. By continuing to place orders in spite of this, the director can be seriously blamed and has therefore acted unlawfully and is liable for the damages suffered by the supplier as a result.

Prevent liability

When the end of your business is in sight or if that risk exists, it is wise as a director to get advice on what to look out for in that case. A quick-scan by one of our specialists can be a useful product for this. Read about that in my earlier blog: Quick-scan director liability and risks group in approaching bankruptcy.