In principle, if a company fails to fulfill a contractual obligation, only the company is liable for the resulting damages. Thus, the basic principle is that the director is not liable. Under special circumstances, a director may nevertheless be liable. An example of such circumstances was at issue in a matter on which the Rotterdam District Court recently rendered a judgment. The director was personally ordered to pay €250,000 to an aggrieved party.
Case non-delivery sold construction crane
A buyer purchased a construction crane from a limited liability company (I call it “Seller B.V.”) for €250,000 in July 2022. The estimated time of delivery of the construction crane to the buyer was August 2022. The purchase price was paid to Seller B.V. by the buyer. Seller B.V., in order to deliver the crane to the buyer, still had to purchase the crane itself.
However, delivery to the buyer remains undelivered. Seller B.V. keeps the buyer on hold for a while longer. In January 2023, a substitute agreement is made according to which Seller B.V. repays the purchase price of €250,000 received to the buyer. This agreement is also not fulfilled by Seller B.V. Not a penny is repaid.
The buyer starts proceedings, claiming payment not only from Seller B.V., but also from the director (jointly and severally). The claim against the director is based on tort (Article 6:162 of the Dutch Civil Code).
Evidentiary position of creditor in director’s liability case
In the case of director liability, it is in principle up to the creditor to prove that the director acted unlawfully. This can be a difficult position to prove. The bar for directors’ liability is high. Case law has crystallized some types of situations in which directors’ liability can be assumed. For example, there is directors’ liability if the director knew or should have known at the time of entering into the agreement that the company would not fulfill the obligation under the agreement and would have no recourse for the non-performance (the Beklamel standard). Another type of situation is where the director frustrated remedies. Selective default (unwillingness to pay) can also be considered. In all of this, the creditor usually has no insight into the debtor’s administration and financial affairs. This complicates the position of proof.
Director had B.V. pay other due debts
However, the judgment of the Rotterdam District Court shows that the director himself provided the necessary information in the proceedings. He has stated that the €250,000 received was used to satisfy various creditors of Seller B.V.. An amount of €70,000 was paid to the Tax Office because of an impending bankruptcy. An amount of € 55,000 was paid to the accountant because he ceased his activities. And €20,000 was paid to transporters. The remaining 105,000 was used during the year 2023 to pay various other current debts.
Court ruling on directors’ liability
The court finds that the director of Seller B.V. is personally at fault. The court agrees with the buyer that the director did not respect the buyer’s interests by using the amount received from the buyer, which was intended to buy a crane from, for other purposes. The court further considered that the money was used to deal with acute financial problems. The director did not ensure that sufficient funds remained, or could be realized, to still fulfill the purchase agreement with the buyer or to fulfill the subsequent repayment agreement.
The director still argued that there were many orders in the pipeline at the time. The court considered that this had not been concretized by the director, whereas it would have been in his path, since that information was in his domain.
Furthermore, the court held that the director put the buyer on the line, while in the meantime using the purchase price to make ongoing payments. In doing so, the director did not demonstrate that Seller B.V. would be able to fulfill the contractual obligations (including the later agreed repayment) or provide recourse for this. The court considers this contrary to what is socially acceptable.
Directors’ liability and the Beklamel standard
The fact that an agreement on repayment (or, for example, a payment schedule) is not fulfilled by the company need not, in principle, lead to directors’ liability. In my opinion, in the matter discussed, the harm had already been done at the time of entering into the purchase agreement with the buyer. Apparently, at that time there were already significant debts to the Tax Office and the accountant. The company was already at risk of bankruptcy. The purchase price received was used to pay the most pressing debts, but the consequence was that the crane could no longer be purchased (and it could not be delivered to the buyer). And in all this, the director was apparently unable to convince the court that he had a reasonable expectation that funds would still come in to purchase the crane. In my view, the conclusion that the director acted unlawfully is based primarily on the Beklamel standard: the director is liable if, at the time of entering into the agreement, he knew or ought to have known that the company would not fulfill the obligation under the agreement and would have no recourse for the non-performance.
Lawyer corporate law and insolvency law in Rotterdam
If you have questions about directors’ liability or have a conflict with a trustee please contact Peter de Graaf.
