The District Court of North Holland issued an interesting ruling on November 27, 2024, regarding director liability in bankruptcy cases. In this case, the director of two insolvent companies was held personally liable for the entire deficit of the estate due to manifestly improper management. The ruling (ECLI:NL:RBNHO:2024:12289) underscores the consequences of failing to comply with the statutory filing obligations and the high burden placed on directors to rebut the presumption of improper management.
Case Overview
On March 14 and 28, 2023, two companies within a corporate group were declared bankrupt. The sole ultimate director of these companies was also responsible for other legal entities within the group.
The insolvency practitioner (curator) argued that the annual accounts for 2021 were not filed on time and that the accounts for 2022 were only prepared after the summons had been issued. Since the companies' incorporation on February 11, 2021, there were structural payment issues, resulting in a combined debt of approximately €600,000. Employees were only partially paid, and tax obligations were consistently neglected.
The curator sought a judicial declaration that manifestly improper management had occurred (primarily under Article 2:248 of the Dutch Civil Code), which would result in the director being personally liable for the estate deficit.
Court’s assessment
Manifestly improper management
The failure to file the 2021 annual accounts on time led, under Article 2:248 paragraph 1 of the Dutch Civil Code, to the presumption that the director had manifestly failed in their duties. This presumption also extends to the improper management being considered a significant cause of the bankruptcy.
Director’s defense
The director argued that external factors such as the COVID-19 pandemic, the war in Ukraine, and a business failure in Dubai were the root causes of the financial difficulties. For the hearing on September 17, 2024, the director submitted the 2022 financial statements as evidence.
However, the court deemed this defense insufficient. The director failed to provide specific and quantified evidence showing how these external factors caused the companies' bankruptcy. Additionally, the court noted a structural pattern of neglect in fulfilling tax obligations and accruing debts within the group, undermining the credibility of the director’s argument.
Liability determination
The court concluded that the director was liable for the entire deficit of the estate. The request for mitigation was denied as the director did not convincingly demonstrate that such liability would lead to unreasonable outcomes. The curator's claims were largely granted, including seizure and legal costs. Furthermore, two affiliated companies were ordered to pay €300,000 to the insolvent companies, thereby partially reducing the estate deficit.
Conclusion
This ruling confirms that a breach of filing obligations shifts the burden of proof to the director. Manifestly improper management is then presumed, leaving it to the director to convincingly prove that other factors caused the bankruptcy. This requires detailed and well-substantiated documentation.
It is crucial for directors to always comply with their obligations to file and deposit annual accounts. Maintaining solid administrative practices can not only mitigate legal risks but also foster confidence among creditors and stakeholders.
