Directors’ liability after failure to pay debts

A company must always pay its debts. If it fails to do so, a creditor may hold the company liable on that ground. In some cases the creditor may also hold the company’s managing director liable, in addition to the company. That is possible, for instance, if that managing director takes or allows actions on behalf of the company in such a manner that the company is in breach of its obligations towards a creditor, while that managing director does not collect the amounts that he himself owes the company.  

The Court of Appeal of ’s-Hertogenbosch recently passed a judgment on this subject. Briefly summarised, the company had entered into a lease but then failed to live up to its payment obligations under that lease and was ultimately declared bankruptIt initially appeared that the landlord had missed the boat and could whistle for his money. However, it soon became apparent that the company’s managing director owed the company EUR 525,030 (a private loan) in his private capacity and had never taken the trouble of collecting that debt on behalf of the company. 

The Court of Appeal ultimately classified that failure to act as wrongful: the managing director should have understood that this failure to act meant that the company would fail to perform its payment obligations. The managing director should have improved the company’s position the moment the company was faced with financial difficulties and was unable to perform its own payment obligations. In the case in question, the managing director should have held himself liable in his private capacity as debtor. By failing to do so, and by failing to explain why that effort was not made and had had no result, the managing director was liable in his private capacity for the damages incurred by the landlord. The managing director was ordered in his private capacity to pay the landlord the rent that the company had failed to pay. 

Please contact Paul Hendriks for more information or advice on this subject.

This article was published in the Newsletter Vestius of July 2019