The One-Tier Board (IVOR nr. 85) 2012/4.7.2.3:4.7.2.3 Liquidator

The One-Tier Board (IVOR nr. 85) 2012/4.7.2.3

4.7.2.3 Liquidator

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Liquidators may claim compensation for the entire deficit upon liquidation from each management board member on the basis of articles 2:138/248 DCC, and from supervisory board members on the basis of articles 2:149/259 DCC, if the board in question has performed its duties in a "manifestly improper way" (kennelijk onbehoorlijk) and this is likely to have been an important cause of the company's bankruptcy. This also applies to a "shadow director" (feitelijk bestuurder), i.e. a person who has acted as if he were a director. If the accounting is insufficient or if the company has not filed its accounts with the trade register, the management board will be assumed to be liable.1

Articles 2.138/248 DCC were introduced in 1987 as the so-called Third Insolvency Abuse Act. It was said that 10% of all bankruptcies were caused by fraud and often by fraudulent accounting. Initially, a liquidator always filed his claim against all members of both the management and supervisory boards because otherwise his claim would be regarded as inadmissible,2 as articles 2.138/248 DCC provide that the entire board is liable. Later it became possible to choose and only file claims against a few specific directors.3 Nonetheless, liquidators usually still file their claims against both full boards.

If there has been sloppy accounting and/or the accounts have not been filed there is an assumption that this is the cause of the bankruptcy. Poor accounting or failure to file in time are therefore very dangerous. Supervisory board members do not have to keep or file accounts themselves, but they can be held liable for the omission anyway.4 In Bodam (1996) it was held that supervisory board members must take some form of action. Holding a shareholders' meeting was not enough. If a board member or shadow director proves that sloppy accounting or failure to fail accounts was not the cause of the bankruptcy, he will not be liable.

In Mefigro (2001)5 the defendant argued that that the bankruptcy had not been caused by sloppy accounting or failure to file the accounts. Vlimeta B.V. traded in scrap metal. It was declared banlcrupt in 1994. The liquidator sued W, one of the directors of Vlimeta B.V., who was registered as director in the trade register. The defendant argued he was not in fact a director and that an incorrect entry in the trade register did not make him a director for interral purposes (the liquidator being treated as an interral party). Although the District Court and Court of Appeal did not accept his argument, the Supreme Court did. Mefigro B.V. and its 100% shareholder Mr Mefigro had a different defence. They argued that neither Mr Mefigro nor Mefigro B.V. was a director, and that they were instead a shadow or de facto director of Vlimeta B.V. This argument was rejected by the District Court, Court of Appeal and Supreme Court, which held that shadow or de facto directors can be held liable. However, Mr Mefigro and Mefigro B.V. were permitWd by the Supreme Court to prove that they had not been shadow directors in the last 3 years before the bankruptcy (which is the time bar) or to prove or make clear that the bankruptcy was caused by reasons other than sloppy accounting and failing to file the accounts.

In Van Schilt (2006)6 the court accepted the defendant's argument that the bankruptcy had been caused not by sloppy accounting or failure to file the accounts but by the death of a director, the sudden departure of another director, damage to products and the termination of the bank's credit. This case also confirmed that where accounts are filed without an auditor's report, the filing is incomplete. However, it was accepted that there was evidence of other causes.

Another important case concerning the liability of management and supervisory board members was the Ceteco bankruptcy mentioned above at 4.5.18.7 That was a case in which the company had pursued a risky strategy. The court found that this had been within the management board's discretion, but held that there had been a failure to heed red flags and to properly supervise the follow-up at a time when the company was overstretching itself All members of the management and supervisory boards plus a shadow director/shareholder were held liable.

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