Directors' liability: seeing opportunities and taking risks!

If, as a creditor, you see a claim go unpaid and your debtor may even go bankrupt, you may be considering writing off the claim as uncollectible. Often that is the correct conclusion, but sometimes it is not.

Indeed, the Supreme Court has developed the doctrine of directors' liability in a series of judgments. Under this doctrine, individual creditors or other injured parties can hold a director of a BV or other legal entity personally liable for the debts left unpaid by that BV or other legal entity. Thus, the doctrine of directors' liability is not or hardly regulated by law, but has developed mainly through case law. It is a complicated doctrine, but it is also one that offers opportunities for business owners to collect claims. Therefore, basic knowledge of it as business owner, accounts receivable manager, CFO, controller or accountant is very useful!

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Entrepreneurship is: seeing opportunities and taking risks

A popular saying is "business is about seeing opportunities and taking risks. The threshold of directors' liability is high. After all, entrepreneurship is about seeing opportunities and taking risks. business owners is allowed to make mistakes and entrepreneurial choices can and do go wrong. This does not always necessarily lead to directors' liability.

The threshold is also high because it is socially and economically desirable for business owners to dare to take risks. If directors' liability is judged - in retrospect - too quickly in legal terms, business owners will dare to take fewer opportunities and be too deterred by the risks. This can have a strong negative impact on entrepreneurial spirit and the business climate and thus on economic growth.

The Imtech case

That a directors' liability lawsuit is often determined not to be a piece of cake is again demonstrated by last week's verdict of the Amsterdam District Court, June 9, 2021, in which the court rejected the claims of 10 investors against 4 former directors and one former supervisory director of the bankrupt engineering firm Imtech. See this link for the ruling. The injured parties cited various legal bases and the doctrine of directors' liability from case law, but the court ruled that the allegations had not become sufficiently concrete and that the claims were partially time-barred.

I take it as a fact of common knowledge that Imtech's bankruptcy seems to have been caused to a large extent by fraud, particularly in Poland. One might think that a director of a legal entity could be personally blamed for the fraud of the legal entity in question. Yet the court in this case ruled that the reproaches were too general and not serious enough to hold the directors and the auditor personally liable. It also lacks the causal link necessary to link the reproach to the alleged damages.

The fact that the court ruled that the claims were not made sufficiently concrete is always an important point when it comes to directors' liability. After all, according to established case law of the Supreme Court, the director of the legal entity must be personally seriously blamed as a result of which the claim of the creditor or injured party was not paid by the legal entity.

The threshold of personal serious misconduct is high and the burden of proof lies with the creditor or injured party holding the director liable. Moreover, if the director disputes the allegations with reasons, the creditor must prove the allegations made on the basis of which he considers the director liable. The causal link between the imputed conduct and the damage suffered must also be stated and proven. Imtech's case thus demonstrates once again the complexity of directors' liability proceedings.

Litigation is: seeing opportunities and taking risks

In my practice, I frequently advise and litigate on directors' liability. I act both for individual creditors and injured parties who (wish to) hold directors liable and - on the other hand - for directors who are held liable for debts of the legal entity they manage.

Bringing a director's liability claim is also a matter of seeing opportunities and taking risks. There is an opportunity to collect the unpaid claim against the legal entity against the director, but there is also a risk that the claim cannot be collected.

Whether the case goes from an opportunity to a success or runs the risk of the claim being dismissed by the court depends on all the circumstances of the case. After all, the doctrine of director liability is highly casuistic: it depends from case to case whether a director can be held liable for a debt of a bankrupt or non-paying company. That may seem like a legal dead giveaway that is therefore of no use to you as business owner ... or is it....

Conclusion

So litigating on the grounds of directors' liability is really just like doing business: it is seeing opportunities and taking risks. So should you always want to hold directors liable? Of course not!

But it is my firm belief that too often business owners consider receivables uncollectible and write them off without first having a quick scan done on their case to see if there might be an opportunity to hold the director privately liable for the damages suffered.

A good quick scan of your case - held against the case law as it has developed in this regard - and then further analysis of your evidentiary position, may lead to the conclusion that the likelihood of directors' liability is high and that the risk of dismissal of the claim by the court may be small.

Therefore, my tip to all business owners: before you decide to write off a (large) claim, have the case analyzed for directors' liability!