NL: Supreme court justices set the tone; Corporate boards increasingly liable

 

Attention directors and supervisory directors: the requirements for good corporate governance are getting higher and the bar for liability is getting lower. This is evident from two recently published judgments by the country's highest judges.

Estro
"Supervision is not an honorary job", headlined the Financieele Dagblad last week (FD 5 May 2023) following the judgment of the Enterprise Chamber in the Estro case. Do you remember? Childcare chain Catalpa was sold in 2010 to the American investor Providence. The company was overloaded with debt and went bankrupt a few years later. The curator then commissioned research into the policy and supervision within Catalpa. On the basis of that investigation, the Enterprise Chamber now finds that the top of the bankrupt childcare chain was guilty of mismanagement thirteen years ago. Both the then board and the supervisory board have seriously failed, according to the judgment of the Enterprise Chamber last week (that judgment can be found via: ECLI:NL:GHAMS:2023:1119).

The judge weighs in on the fact that the works council of the childcare chain has been misled. The company was saddled with an unbearable debt burden of about half a billion at the time of the sale, but the board failed to inform the works council correctly and fully about this.

No meaningful fulfillment of duties

The commissioners are judged that none of them "gave a meaningful interpretation to the statutory task as commissioner of Catalpa". The board is told that "there is nothing to indicate that it has properly taken the financial risks into account in its balancing of interests". The Enterprise Chamber believes that the top of the childcare chain has acted 'very carelessly' on this point.

Lifebuoy

With such a judgment, it becomes a prize for the liquidator when it comes to holding the management board and supervisory board liable. The only lifeline thrown at the board is that the judge feels they cannot be personally blamed. That makes the board's liability a little less straightforward. The Commissioners do not get the lifeline; Their liability is only a matter of time.

De facto policymaker = co-policymaker

The Supreme Court also made a contribution to the liability bag last month (ECLI:NL:HR:2023:445). This ruling is especially important for persons who are not formally directors and are therefore not registered as directors with the Chamber of Commerce, but who do make important decisions together with the board. For those individuals, liability lurks in the event of bankruptcy. Here's how.

The law stipulates that directors can be privately liable in the event of bankruptcy. That law – to be precise paragraph 7 of art. 2:248 BW – stipulates that this liability also applies to so-called "de facto policymakers". That is someone who has behaved within a company "as if he were a director". Who, in other words, makes important decisions that should really be on the board's plate. This article of the law tries to prevent malpractice directors from avoiding liability by using so-called "cat catchers": persons who register as directors of companies for a fee, while they have nothing to do with that company.

No exclusion of formal administration necessary

The Supreme Court has now decided that it is not necessary for such a de facto policymaker to have governed rather than and excluding formal governance. In other words, not only people who use so-called cat catchers are liable. Someone who makes important decisions, while one or more formal directors continue to perform their duties as directors, can also be a de facto policymaker. And therefore in the event of bankruptcy be held liable by the liquidator.

Conclusion

The requirements imposed on the top of companies – directors, supervisory directors, other policy-making figures – are not tender and are becoming stricter by the day. Liability is in a small corner. Be aware of this, if in doubt about the policy to be implemented, get good and timely advice and always remember: tall trees actually catch a lot of wind in corporate law.

 

For further information, please contact:

Sjef Bartels, Partner

Labré advocaten, Amsterdam

e: sjef.bartels@labre.nl

t: +31 20 3052030

 

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