4.7.2.7 Joint liability

The management board has a general reporting obligation. This is a collective responsibility and suits the Dutch concept of a consensus-seeking or collegiate board. Under such an obligation, each director is responsible for that part of company policy which falls within his specific remit as director. Moreover, each director has an obligation to the company to perform his general duties properly.

Under the present text of article 2:9 DCC, each director is responsible to the company for the proper performance of the duties assigned to him. If a matter falls within the remit of two or more directors, each will be jointly and severally liable for any shortcoming, unless he proves that it is not attributable to him and that he was not negligent in acting to prevent the consequences.

Another example of joint liability of directors under Dutch law is article 2:138/ 248 DCC, which states that in case of bankruptcy of a company, each director will be jointly and severally liable to the estate of the company for the total amount of the obligations and to the extent that these cannot be satisfied out of the liquidation of the other assets, but only if the management board has manifestly failed to perform its duties properly and this can reasonably be assumed to be an important cause of the bankruptcy. Improper accounting and failure to file accounts are regarded as important causes, but exculpation is possible even then if the director proves there was in fact a different cause (see the Supreme Court cases described above in sub-section 4.7.2.5).

It is clear that individual directors can exculpate themselves in certain circumstances. If an individual director can prove that a shortcoming in the performance of the board, which may have caused damage to the company or a third party, cannot be attributed to him and/or that he properly tried to prevent this damage, such exculpation may be successful. Under article 2.149/259 DCC this applies to supervisory board members too. Misrepresentation of accounts can also be held against both management board members1 and supervisory board members,2 each subject to the possibility of exculpation.3

In keeping with Dutch corporate culture, management board members tend to make decisions jointly, as a collegiate board. This results in joint and several liability, with the possibility of exculpation.

Some authors argue that less stress should be put on the issue of joint and several liability. Others would prefer only an individual liability and for wider possibilities of exculpation. They reason that directors should feel free to work as entrepreneurs and should not be constrained by an increase in the specialisation of functions on supervisory boards and non-executive committees. Finally, there will be specialisation in the future one-tier board based on article 2.129a/239a, paragraph 3 DCC (Act), which states that directors can have specialised functions.4

Professor J.B. Wezeman5 has made three proposals: first, to change article 2.9 DCC and take away the joint and several liability (this would make each director liable only for his specific task and not for improper management by a colleague, although they would still all be liable for general management); second, to define the concept of liability more clearly and follow the Delaware business judgment mle as defended by Assink in his thesis of 2007;6 and, third, to introduce more possibilities of indemnification by the company, based on the argument that as article 2.9 DCC is not mandatory for BVs there could be indemnification even if there was serious fault. Indemnification by the company means it holds the director harmless for claims of the company itself and of any third party. Finally he also notes the emergence of a trend in certain cases. First, Tax Collector v. Roelofsen of 2006,7 where the tax returns filed by the director were too low and caused damage to the tax collector when the company went bankrupt. Second, Nutsbedrijf Westland of 2007,8 where the director had been dismissed because of incorrect accounting and the Supreme Court held that the serious blame test should also apply in tort cases. And, third, NOMv. Willemsen of 2005,9 where the director had asked for a payment moratorium without seeking the consent of the shareholders, although he had consulted with NOM, an investment company belonging to the northem provinces. In all these cases the director was not held liable by the courts. Wezeman interprets this as an indication that the Supreme Court is moving towards the Delaware business judgment mle, without actually copying it. In all those cases the director had not acted against the interests of the company and was not seriously culpable. Nor was there any bad faith. I agree with him as regards the last aspect of convergence with the Delaware business judgment mle test for liability as such, provided there is no disloyalty, no serious blame and no bad faith. I will discuss the other aspects of exculpation and indemnification below.

Mrs Strik proposes that article 2.9 DCC be changed in such a way as to clarify the issue of exculpation. For example, whether a director who finds out about mismanagement by a fellow director should be liable only for damage arising from the moment he discovers the problem.10 The changes she has suggested to the text of the new article 2.9 DCC as contained in the Act have not been introduced in the amendments to that article for one-tier boards, but the courts might follow her and apply broader grounds for exculpation of directors in line with the decision of the Supreme Court in of Staleman v. Van de Ven and the circumstances it mentions.

The only possible criticism of the Supreme Court's decisions is that they only give criteria for what a director should not do, i.e. not incur serious blame. Directors and corporate lawyers would be grateful to know how much freedom directors have. More clarity could help directors to adopt a more confident approach to their entrepreneurship.11 Another aspect is that the media and insurers like to exaggerate the liability risks and many risk-conscious lawyers are not very comforting either. This may be due to the fact that the law is not overly clear yet.12 To make it clearer is easier said than done. It requires a large volume of clear case law and good information about the law on directors at the courses that they follow. By comparison, the Delaware business judgment rule and the UK literature13 in a different way clearly state that directors who have seriously considered all aspects are free to take decisions as they see fit.

As to joint and several liability I would repeat that this is part of the Dutch corporate consensus-seeking or collegiate culture. It has the advantage that specialists on the board take the time to explain to the other directors, all of whom are responsible, what they do to perform their specialised duties. This stimulates intemal communication and avoids compartmentalism. As regards exculpation, the Staleman v. Van de Ven case, the new text of article 2.9 DCC and the explanations of the Minister of Justice are starling to provide more clarity. This also applies to the position of nonexecutive directors in the proposed one-tier board.

Since the 1990s there has been debate about the exact text of article 2.9 DCC and especially about the possibility of exculpation mentioned there. The words task (taak) and area of work, also called "scope of responsibility" (werkkring) have been at the centre of the debate, but there is general agreement that if one board member fails in his specific task, his colleagues can exculpate themselves if they prove that it was outside their specialism, that they did not fail to take action as soon as they should have discovered it and that they were not seriously culpable.14 Few examples have been given in the whole debate and examples are indeed difficult to give. However, as soon as a director becomes aware of a failure that falls outside his remit he should take action to avoid or mitigate its effects. This implies that any examples given are usually based on a failure to give information or fraud by one director that remain concealed.15 The explanation given by the Minister of Justice for the proposed article 2.9 DCC (Act) does give some examples of a separation of tasks: finance, purchasing, sales, directing a separate division, human resources, filing data with the trade register, filing of accounts.16 The Minister adds that directors with separate tasks must inform other directors at the next meeting what they have done. This, again, reconfirms the concept of the collegiate Dutch board. How this information is to be provided from time to time could be specified in interaal bye-law or even in the articles of association.17

Another example could be that a certain task is allocated to a director. Another director then discovers a mistake made by the first director. In such circumstances, he must immediately inform the complete board and discuss what solutions are possible and perhaps ask for the appointment of an expert. If he has done this, exculpation would apply.18

So much for exculpation. The essential point is that a director is not liable if he cannot be seriously blamed for a fault that has committed. This is a high threshold for liability.

Increasingly, supervisory board members receive letters from lawyers of shareholders threatening that if they take a certain decision they will be held liable. This makes it all the more important for there to be a clear understanding of the test of serious personal blame (ernstig verwijt), as described in the above decisions of the Supreme Court. Directors should realize that courts give them entrepreneurial leeway that is fairly close to that of the Delaware business judgment rule.

The Gispen v. Coebergh case of 199919 was an example of joint and several liability and exculpation. The District Court made clear that in article 2.9 DCC cases the plaintiff has the onus of proving serious blame and that an individual director has the onus of proving he was not culpable if he wishes to exculpate himself. Here the whole management board knew and accepted that a director had recklessly concluded a contract that was gros sly unfavourable to the company. The District Court ruled that this was so obviously wrong that none of the directors succeeded in exculpating themselves. However, in the same case a double payment made by one director without telling the other director was so specific to the area of work of the paying director that the other director could exculpate himself.