The first board bans are a reality....

The Minister of Security and Justice has sought to strengthen the position of the trustee in bankruptcy fraud by adding a number of new powers to the trustee's toolbox. The civil management ban is one of those powers and recently the first management bans were pronounced and published. In an earlier blog, my office colleague Erik Jansen wrote about what the management ban entails.

In short, it concerns the following: since some time, a trustee in bankruptcy can request the court to impose a management ban for a certain period of time on a director of a bankrupt legal entity (for example, a BV). The law provides five grounds for doing so: director's liability, fraudulent misrepresentation, breach of the duty to provide information, the director has been involved more than twice in a bankruptcy and can be blamed for that, and finally, if the director has received an offense penalty from the tax authorities.

If the court grants the trustee's request, the director cannot be appointed as a director of a legal entity for a period of up to five years. To prevent this from happening anyway, the Chamber of Commerce maintains a list where directors are published by name.

A tip for the business owner who is considering appointing a new director: check whether the director is included on the list of board prohibitions. That list can be found here.

All in all, a nice tool to (temporarily) eliminate rogue directors. However, there is - for practical purposes - a major problem: in many bankruptcies where the director qualifies for an administration ban, the trustee has no means to litigate, the BV is often "empty."

By itself, the management ban does not (yet) qualify for financing under the so-called guarantee scheme of the Justice Department. The guarantee scheme enables the receiver to conduct recovery investigations and proceedings against directors. A condition for this, however, is that there is a prospect of recovery. With rogue directors and cat catchers, however, there is often no such recourse, at least not traceable.

Thus, in such cases, the trustee will not be able to intervene, allowing the director to continue/repeat his methods in other BVs as well. The public prosecutor can also seek such a management ban, but I do not expect this to occur often: the public prosecutor simply does not have the resources and manpower to do so.

It is up to the legislature to change that.