10.2.5 The defence costs of EC officers

Although the risk of establishing the liability of EC officers in court is low, this does not alter the fact that, in practice, EC officers are regularly being threatened by liability or are actually held liable and/or incur non-recoverable defence costs. This can make it (more) difficult to find EC officers in the future and may put pressure on the effectiveness of the right of inquiry. As a result, EC officers can also request to be relieved of their duties. This entails costs and loss of time, either for the legal person or another party financing the EC officer’s remuneration or for the EC officer. There is also a risk that when faced with (the threat of) liability, EC officers will act in accordance with the wishes of an aggressor (par. 5.2.6).

The liability position of EC officers has improved by the adoption of a different administration duty for directors appointed by the Enterprise Chamber (par. 5.2.7.10) and the limited powers of administrators appointed by the Enterprise Chamber as adopted by the Enterprise Chamber (par. 5.2.7.11). The task of these EC officers thus becomes smaller, which may also reduce the risk of liability (or threat thereof) and the establishment of liability. In this context, assigning power to the Enterprise Chamber to determine an equitable remuneration in bidding processes merits consideration (par. 5.2.7.14). The liability position of EC officers may further improve if EC officers pursue a policy that shows that they recognise that their position is temporary, that measures of a reorganisational nature are only taken by them on the basis of a verifiable assessment of the interests of the parties concerned and that these measures are unavoidable and of an urgent nature (par. 5.2.7.12).

When the occasion arises, the Enterprise Chamber has a number of instruments at its disposal to further improve the liability position of EC officers. The Enterprise Chamber can exert pressure for the withdrawal of a liability claim (par. 5.2.7.2) or for the granting of an exoneration (par. 5.2.7.3). Furthermore, the Enterprise Chamber can decide to appoint EC officers only if they have been sufficiently indemnified beforehand by the parties to the inquiry proceedings (par. 5.2.7.5). It can also make use of its power to impose prohibitory injunctions on pain of a penalty (par. 5.2.7.9), set aside rules laid down by law, or in the articles of incorporation (par. 5.2.7.13), or impose interim reporting by EC officers (par. 5.2.7.17). Where postponement of decisions by EC officers is accepted, the Enterprise Chamber can give guidance to EC officers (par. 5.2.7.16).

It is also important that prior to the intended appointment of an EC officer, it must be clear whether there is an existing Directors’ & Officers’ insurance. Only then can the possible risks for the prospective EC officer be adequately assessed. However, as a rule, the prospective EC officer will not have the opportunity to look into this in a sufficient manner before accepting the appointment. It is therefore up to the Enterprise Chamber and the parties to the proceedings to obtain the necessary information in the phase preceding the appointment and to take the necessary steps if required. The Enterprise Chamber could ask the parties as a matter of course whether they have liability insurance or legal expenses insurance, and if so, to submit the policy conditions. This would make it clear before the appointment whether there is an increased risk for the prospective EC officer. The Enterprise Chamber could also only appoint those who, in their capacity as EC officers, are already covered under their professional liability insurance as lawyers or accountants (par. 5.2.7.6).

If the Enterprise Chamber considers the risks of liability (or threat thereof) to be real, it may also consider not appointing an EC officer and proceed to take another immediate relief, such as suspending resolutions, suspending voting rights, or temporarily derogating from the articles of incorporation, or, in extreme cases, decide not to intervene. However, it is important to point out that contentious behaviour should not be rewarded by non-intervention. It should not be the case that a party can avoid intervention by the Enterprise Chamber by displaying unreasonable behaviour to maximise the risks for the prospective EC officer (par. 5.2.7.1).

EC officers can also take measures to improve their liability position. They can seek exoneration (par. 5.2.7.3) or indemnification (par. 5.2.7.5) from the parties, or try to take out appropriate insurance (par. 5.2.7.6). Where postponement of decisions is possible, they may request the Enterprise Chamber for guidance (par. 5.2.7.16). If the Enterprise Chamber appoints an administrator, the administrator can exonerate or – if authorised by the Enterprise Chamber – indemnify EC officers on behalf of the legal person, as well as grant them discharge (par. 5.2.7.7). In this way, the Enterprise Chamber can also further improve the liability position of EC officers by deploying an administrator.

The fact that EC officers can be held liable is in itself not problematic. I consider it of greater importance that, in the event of liability (or threat thereof), they will incur defence costs which, in certain circumstances, cannot be reimbursed. This is particularly relevant in case EC officers are appointed when the legal person is in financial distress, without (proper) insurance. In that case, the legal person has no or insufficient means to finance the costs of defence of EC officers (par. 5.3.3). Insofar as insurance exists, the question is whether it will provide an adequate solution, for example, due to the limited scope of coverage or exclusion for the reason of bankruptcy (par. 5.2.7.6).

In my opinion, the defence costs of EC officers are part of their remuneration (par. 5.3.2.8). The amount secured for the remuneration of EC officers therefore also serves to secure the costs of defence of EC officers. In par. 4.7.4, I propose to entrust the management of the secured remuneration of EC officers to the Enterprise Chamber, which in my view should also include the costs of defence of EC officers. However, additional security for the costs of defence of EC officers is conceivable (par. 5.3.4.1).

In my opinion, the Enterprise Chamber could already determine of its own motion (ex officio) when appointing an EC officer that the legal person will have to pay his costs of defence, at least for inquiry proceedings in highly conflictive circumstances (par. 5.3.2.2 and par. 5.3.2.6). In addition, the Enterprise Chamber can determine, pursuant to Article 2:357, paragraph 2, DCC, that the legal person shall also owe the costs of defence of the EC officer to be appointed in disciplinary proceedings if the EC officer to be appointed is subject to disciplinary proceedings. (par. 5.3.2.7 and par. 5.3.2.9).

The Enterprise Chamber may further grant an administrator the power to award an indemnification. EC officers can also press for indemnification by the parties, but the parties are not obliged to give an indemnification. However, the Enterprise Chamber could always issue an ultimatum to the parties: the EC officer is indemnified by the parties and subsequently appointed or without indemnification, no EC officer shall be appointed (par. 5.3.4.2).

One may consider limiting the liability of EC officers pursuant to Article 6:110 DCC. Such a limitation for EC officers does not prevent EC officers from incurring defence costs, but it could make insurers willing to change the insurance conditions, for instance by asking for lower premiums or by removing the bankruptcy exclusion (par. 5.2.7.6 and par. 5.2.7.8).

In my opinion, the legal qualification of the costs of defence of EC officers as estate debt (par. 5.3.4.5) or the establishment of a solidarity fund by the Rimari Foundation (par. 5.3.4.7) also merits further consideration. The financing of the costs of defence would then continue to be the responsibility of the legal person. Also, an arrangement could be considered under which the State bears the costs of defence of EC officers in bankruptcy situations (par. 5.3.4.6).