My debtor won’t pay.
Being right and being right are two different things, it is sometimes said. This is not entirely true, but it shows that a court ruling is not always considered satisfactory. If the verdict remains the same even on appeal to the Supreme Court, there is not much that can be done about it. The judgment must be enforced. If a company has been convicted, it is up to the director of the company to do the same. At most, it could be considered whether a payment arrangement can be made, a commercial solution can be found or the damage can be passed on by holding someone else liable for it.
But what if a debtor fails to comply with a court order? Then the bailiff can be called in and measures for collection can be taken, such as attachment of the company’s bank account, stocks or real estate. The bank must pay the seized money in the bank account to the bailiff, stocks and real estate can be sold by auction, etc.
In practice, a judgment is usually obeyed and paid voluntarily after the court’s ruling. Sometimes it is necessary to involve the bailiff. But this does not always lead to the desired result, for example because the company is in financial difficulties and there is simply nothing to collect. The approach with the best chance of success then is to file for bankruptcy of the company, so that the few financial resources that may be left are used to pay your claim instead of that of another creditor with more patience.
Unwillingness to pay
However, it may also be that the company that needs to pay does have the ability to do so, but chooses not to take advantage of it while the company is structured in such a way that collection measures by the bailiff cannot be effective. Consider, for example, a structure in which all the assets of the operating company are owned by the holding company and leased to the operating company, while also the financial resources – at the discretion of the holding company – may or may not be made available to the operating company or the specially formed project company. Such a construction can be clever and permissible, but it can also get a little too clever. If this is abused, the director may be liable in private for the amounts that cannot be collected from the operating company or project company.
Inability to pay
Liability of the director can also arise in a situation where there is no more money and thus no situation of unwillingness to pay. Then there is force majeure, but is it right for a supplier or other creditor to be the victim of this?
The director of a company can be held personally liable by a creditor if he entered into obligations on behalf of the company at the time he knew or should have understood that they would not be met and the company would have no recourse. An example is the director who receives an order on behalf of his limited liability company from a new customer. He immediately sends an invoice for the first installment, but at that time the bank has already cancelled the credit or there is a huge tax debt for which subpoenas have been received. The customer pays the first installment, but a few weeks later the company goes bankrupt and cannot fulfill its obligations to the customer. For the customer’s damages, the director may be liable in private. The relevant question is whether, at the time of sending his invoice, the director still had a realistic prospect of a solution, for example because another meeting was scheduled with the bank at which a proposal would be discussed or because a deferral of payment could still be obtained from the tax authorities. Depending on the exact situation, a director in such a case may or may not be sued privately to compensate the damage suffered by the customer because he has paid an invoice but has not received delivery. Or to compensate the damage of a supplier who delivered in good faith when the director should have already known that things would go wrong and the company would not be able to pay the invoice for this delivery.
Something else again is the situation where the company cannot fulfill its obligations, but the director knowingly allowed this situation to arise. The director can also be held privately liable for the resulting damages. For example, consider the situation where you buy a property from a company, but it is not delivered because the director decides to still sell this property to another party who apparently made a better offer. If this goes wrong and the damages you suffer as a result cannot be collected from the company, the director may be liable in private.
Selective payment
What is allowed is selective payment of certain creditors and leaving others unpaid. This is different again when the company has decided to cease its activities. Then it may not choose to pay claims from related parties (e.g. those of a shareholder) and leave claims from regular creditors unpaid in part because there is too little money. Or to pay off the bank debt for which the director stands surety and not to pay a supplier or to pay only part of it.
Under circumstances it may be that the director should have taken future liabilities into account, for example by making a provision for them. If the director fails to do so and spends money that is not actually there, he can also be held personally liable for this. Again, this is especially true in a situation where related parties do get paid or debts are paid off in which the director has a personal interest, such as the aforementioned example of the bank debt for which he stands surety.
Questions about debt collection or director liability?
If you are dealing with a customer who does not pay or a contracting party who does not fulfill its obligations, we can help you. Even if the regular collection process fails, there may still be possibilities to obtain payment or compensation for your damages.
If, on the other hand, you are the director who, in your opinion wrongfully, is held privately liable, we are also there to defend your position.
Whether a director is just liable or not always depends on the specific circumstances. Doing business is also taking risks and that is allowed, according to the Supreme Court. But if someone can be personally blamed, he must privately compensate for damages. The dividing line is thin and this is where we can make the difference for you. If you need us to do so, please contact Bouwe Bos.
