4.3.1 Discharge from directors’ liability: the framework

Discharge from directors’ liability exists as a long standing Dutch business practice. Where, in the context of internal directors’ liability, a Dutch company suffers damages as a result of the actions of a director, the company may claim damages from the director concerned based on article 2:9 DCC. Dutch company law allows the company to renounce any actual or potential claims against the director − management and supervisory directors, executive and non-executive directors − by granting a discharge from directors’ liability. Traditionally, two forms of discharge proposals are distinguished. The first is the annual discharge, granted by means of a resolution of the general meeting of shareholders (art. 2:101[3]/210[3] DCC) and based on the company’s annual financial statements.1 The second is the final discharge, provided in the event that a director leaves the service of the company and desires that the liability protection covers the full term of directorship. Final discharge may be granted by means of a shareholders’ resolution or by means of a settlement agreement [vaststellingsovereenkomst].2 To date, existing case law permits a company to discharge directors of ‘subjective bad faith’ actions. A discharge provision insulates serious reproachable conduct, including ‘subjective bad faith’ conduct, which otherwise would result in the liability of the director to the company, providing the potential litigious conduct was ‘known’ to the company’s shareholders.3

Despite its reputation as a waiver of right, the protection provided is often treated in court proceedings as an affirmative defence [bevrijdend verweer].4 This means that when confronted with court proceedings, the defendant director must invoke the discharge in his defence and bear the burden of demonstrating good faith reliance on a validly provided discharge provision to rebut the claim of directors’ liability.5 Generally, the liability question is first raised and reviewed before the court proceeds to assess whether the defendant is discharged of paying damages that was attributable to serious reproachable conduct.6

In the absence of statutory rules on how to review a director’s recourse to such a waiver, the Dutch Supreme Court has established in Staleman v. Van de Ven a doctrine on ‘limited scope’ which the Court reasoned to be adequately corresponding to the implication of such a waiver of rights.7 To protect the company against potential disproportionate, harmful effects of the discharge, I understand the established method of judicial review as concentrating on the knowledge of those authorised to grant the director the discharge, generally the company’s general shareholders’ meeting.8 It is important to note that the general shareholders’ meeting does not have an obligation to inform themselves [onderzoeksplicht].9 In proceedings, courts infer the presence of this knowledge from the company’s books and financial statements or other communications made to the shareholders’ meeting. Accordingly, I understand the Dutch Supreme Court’s legal reasoning as characterised with the following pattern:

Note that, in this research, I will treat ‘subjective bad faith’ as distinct from ‘not in good faith’. The latter type of conduct does not involve the intent to cause harm to the company. Both are however regarded ‘bad faith’ actions constituting a serious reproach. The importance of this distinction will become clear in the subsequent paragraphs 4.3.2.

I will now consider how (lower) courts have reviewed discharge claims (2003-2013).