3.2.4 Liability in the event of bankruptcy – article 2:138/248 DCC

Directors may also face a claim filed by the bankruptcy trustee representing the interests of the creditors collectively under art. 2:138/248 DCC. To establish directors’ liability, the director must have demonstrably engaged in manifestly improper management and the improper management was an important cause of the company’s bankruptcy. Provided that these conditions are satisfied, a director can be held jointly and severally liable to the bankrupt estate (art. 2:138/248[1] DCC) with the restriction that these type of claims can be filed only on the ground that the improper management took place in the period of three years preceding the company’s bankruptcy. Discharge does not preclude such claim (art. 2:138/248[6] DCC).

In reviewing a director’s conduct under bankruptcy, I am further assuming that the courts use the concept of ‘serious reproach’ to hold a director liable in the face of foreseeability of damage. I assume that manifestly improper management implies ‘serious reproach’. According to parliamentary history, the element ‘reproach’ should be read as implicit in the term ‘improper management’. The term ‘manifestly’ should be understood as an expression of the severity of the reproach that can be made against the director. In other words, ‘the improperness of the director’s action must be beyond doubt’; otherwise the director cannot be held liable.28 Moreover, I understand the Supreme Court’s decision in Panmo I and Panmo II as consistent with the notions in parliamentary history, insofar as manifestly improper management as prescribed in art. 2:138/248 DCC requires that a director can be seriously reproached for his actions or omissions.1

Moreover, I assume that, relative to the aim of protecting creditors under art. 2:138/248(1) DCC, there must be serious violations on the part of a director in order to find the director to be liable. There are indications in case law suggesting that foreseeability of damage to the creditors of the company is an important criterion for establishing the liability of directors.2 In the Panmo cases, the board of Panmo decided that, as part of a rescue plan, the company’ equity capital would be encumbered with the debts of Scarpa, one of the company’s subsidiaries. By accepting the risk of an irrecoverable debt, the board increased the company’s financial risk. The Supreme Court reasoned that the board’s course of action did not involve reasonable knowledge that the creditors of the company would suffer damage.3 I understand this reasoning in Panmo I and II as implying that foreseeability of damage to creditors is an important criterion for courts when adjudging a director liable to a bankrupt estate. Panmo was later applied in Lébol Kittechnieken B.V. and Vonos Group B.V. in which the criterion of foreseeability of damage was made explicit.4

The majority of the claims in the event of bankruptcy are, however, based on art. 2:138/248(2) DCC. Under these articles, liability is presumed if the director violates the following statutory obligations: the duty to maintain proper bookkeeping (art. 2:10 DCC) and the duty to publish the financial statements timely (art. 2:394 DCC). If the director does not comply with one of these statutory obligations, said director may be irrefutably presumed [onweerlegbaar vermoeden] to perform the required duties in a manifestly improper manner (art. 2:138/248[2] DCC). If the company indeed goes bankrupt, it may be furthermore refutably presumed [weerlegbaar vermoeden] that the manifestly improper performance was an important cause of the bankruptcy (art. 2:138/ 248[1] DCC), providing that an immaterial omission [onbelangrijk verzuim] was not at issue.5 To escape liability, the burden of proof rests with the director to show that the bankruptcy was the result of external circumstances other than improper performance.6