Managing director liable for actions just before dissolution of BV?

Directors' liability is and remains a hot topic for lawyers. Also in the case that we discuss this week: a BV forfeits a contractual fine. Subsequently, a loan is paid to the director/shareholder and the BV is dissolved. Does this lead to personal liability of the director?

What were the facts?

In 2011, a purchase agreement was concluded between A-D Projectontwikkeling 3 B.V. ("AD") and the municipality of Peel en Maas for the sale of three plots of land. After the transfer of ownership of the plots from the municipality to AD, AD (represented by its managing director A-D Projectontwikkeling Beheer B.V. ('AD Beheer')) transferred the ownership of all the plots to third parties. Prior permission from the municipality was required for this on the basis of the purchase agreement.

However, one of the plots was sold and delivered by AD without the required consent of the municipality. AD then used the sale proceeds of the plot in full to (largely) repay a loan from AD Beheer to AD. Immediately after the plot was delivered, AD Beheer (as a shareholder) dissolved AD.

The municipality is very unhappy and claims from AD Beheer and its three directors compensation of €250,000 for an unlawful act. The directors are held liable on the basis of Article 2:11 of the Dutch Civil Code. This provision makes it possible to also hold the natural persons behind a legal person-director jointly and severally liable. The municipality is blaming AD Beheer because AD Beheer, as a director of AD, has actively ensured that AD did not comply with its contractual obligations towards the municipality, as a result of which AD forfeited a penalty of €250,000 on the basis of a penalty clause in the purchase agreement.

It is now up to the court to decide whether AD Beheer and its directors have acted unlawfully and are therefore liable as directors for: not paying the contractual penalty to the municipality, paying the loan of AD Beheer and the dissolution of AD.

Judgment of the court

The court referred to well-known case law on this subject, the so-called Beklamelnorm of the Dutch Supreme Court (Hoge Raad): if a company fails to perform or commits an unlawful act, in principle only the company itself can be held liable. This is different if there are special circumstances that make a director liable. It is then necessary that the director can be blamed for a serious personal fault. According to case law, there is also unlawful conduct by a director if that director causes or allows the company to fail to comply with its contractual obligations and thereby causes damage to the other party.

According to the court, AD Beheer and its directors are liable for the damage suffered by the municipality. After all, the directors knew that written permission was required for the sale of the plot. They also used the sale proceeds to pay AD Beheer and AD was dissolved. The directors did not state or show on what basis the payment to AD Beheer was made, so it is not clear why there would be a payable loan. In other words, the payment from AD to AD Beheer was a so-called undue payment. Because of that payment, the municipality could not recover the sales proceeds of the property.

AD Beheer (and its directors) can therefore be held personally liable, according to the Limburg court.

The directors' liability does not lie in owing the contractual penalty, but in not using the proceeds of the sale of the property to pay the penalty to the municipality. The net sales proceeds of the property amounted to €195,000 and at the time of transfer it was not known that the fine would not be paid. The court ruled that AD Beheer, as director, was ordered to pay €195,000.

In other words: the court links up with the actual sales proceeds of the property and not with the contractual penalty of €250,000. So it is not the case that the mere forfeiture of the contractual penalty has led to directors' liability! According to the court, what matters is what happened afterwards.

You can read the full judgment here.

Do you also have questions about directors' liability or other corporate law issues? The experienced team of SPEE advocaten & mediation will be happy to assist you.

SPEE advocaten & mediation Maastricht