Exercise your responsibilities carefully as the penalties for failure to do so can be severe.
Directors have an internal liability towards the company. Furthermore, a number of external liabilities are applicable. Without being exhaustive, one should consider the following: – liability for tort (onrechtmatige daad)
company insolvent liability in case of bankruptcy
Criminal acts can also be committed by companies. Sanctions for such criminal acts can be imposed on the legal entity and/or on those persons who actually supervised or authorised the criminal act. In addition to the criminal acts described in the Dutch Penal Code, many provisions of the Economic Offences Act (Wet op de economische delicten) are specifically aimed at the management board or its directors. Criminal acts under the Economic Offences Act may lead to a maximum prison sentence of six (6) years or a maximum fine of €81,000 for private persons and for legal entities fines up to 10% of the total turnover.
The Dutch Penal Code contains various provisions explicitly addressed to managing directors. For instance, the following acts are considered as a criminal act:
Either the breach of duty itself, or the imposition of one of the sanctions described above, may lead to disciplinary action being taken against you and/ or limitations upon you being able to continue in your role.
The court may decide to moderate the amount of damages for which directors are held personally liable. It may do so when it considers the amount of the claim to be excessive, based on the nature and seriousness of the improper management, and, in case of directors’ liability based on bankruptcy, the existence of other causes of the bankruptcy.
Furthermore, the court is allowed to moderate the liability of an individual director considering the period in which improper management has been conducted as compared to the – longer – period that such managing director has been in his position.
Legal claims for damages against managing directors are limited in time. The statute of limitations for such actions will be five (5) years from the date the claimant is aware of (i) the damage or that the claim is due and payable and (ii) the identity of the liable person(s), and in any case twenty (20) years from the date of occurrence of the default causing the damage.
A company may indemnify a director against liabilities and claims invoked by third parties. Such claims, must be related to the performance of the duties of a director. The company cannot indemnify a director against liabilities based on a breach of a director towards the company itself.
In addition, the company may discharge a director from liability for the performance of his duties as a director. Such discharge is granted by the general meeting of shareholders. The discharge relates to the management activities of the directors during the preceding year and will limit possible liability of directors. Such a discharge, however, is only valid for facts that are disclosed in, or may be derived from, the company’s annual accounts and or otherwise disclosed or known to the company’s general meeting of shareholders.
A general indemnity is sometimes included in the articles of association. A more detailed indemnity could also be provided for in the employment contract, contract of service or letter of appointment.
Dutch law does not provide the right for a shareholder to initiate a derivative action. However, it could not be excluded that the court would enable such an action. Before such an action can be successful, the shareholder must prove that a specific standard of due care against him personally has been breached.
The directors may delegate responsibility for specific issues to individual directors or a committee of directors. However, if a matter falls within the responsibility of two or more directors, each director remains jointly and severally liable for it, unless a director is able to exculpate itself from such liability.
A director may be able to exculpate himself from being liable if (i) he cannot be blamed for improper management himself and (ii) he attempted to prevent the negative consequences of the improper management from happening (eg serious attempts afterwards to undo a decision taken by his fellow managing directors in his absence (for example, because of illness or holiday).
These grounds for exculpation require a director to prove that he cannot be seriously blamed and that he has not been seriously negligent with respect to taking measures.
Your company may have a global insurance programme including directors’ and officers’ liability insurance. If not, companies may obtain directors’ insurance on behalf of the directors of the company.