07 May Directors of foundations may be personally liable
If a foundation incurs loss, a director of that foundation may be held personally liable in some cases. But in what circumstances is that possible?
A director of a foundation may be held personally liable for loss incurred by the foundation if serious blame can be attributed to him or her. It depends on the circumstances whether that is the case. “Would an experienced director, acting reasonably, have acted in that manner in those circumstances?” is the question that directors should always ask themselves. If the answer is “no”, the director runs a high risk of being held liable. A director who works on a voluntary basis is liable in the same manner as a remunerated director.
De facto director
A person who is not formally a director but who acts in that manner (known as a de facto policymaker) may also be liable for the loss incurred by the foundation, for instance if he or she co-determines the foundation’s policy and has held a position at the foundation from the start in which he or she was able to exercise, and actually exercised, control in the same manner as a formal director, such as a person who is granted the title of director. But also in that case, the de facto policymaker can be held liable only if serious blame can be attributed to him or her.
Recent judgment of the Court of Appeal of ’s-Hertogenbosch
A case in point is the dispute between a school (a foundation), several directors and a policymaker, in which the Court of Appeal of ’s-Hertogenbosch recently passed judgment1. The directors (the chair, a (temporary) treasurer and a secretary) and a de facto policymaker (the principal) had set up a new school and entered into all kinds of contracts on behalf of that school, even though they knew that the school did not have adequate financing and it was uncertain whether that financing would be provided. They therefore took an irresponsibly high risk of the school being unable to perform its financial obligations. As a result, the directors and the principal were personally liable for the loss incurred by the school. One of the directors believed that he could not be held liable because he did not have the capabilities required to perform his task and, moreover, was to be only a temporary board member. The Court of Appeal made short work of those arguments.
A director or de facto policymaker of a foundation may be held liable by that foundation if the foundation incurs loss due to his or her actions. If the director or de facto policymaker fails to act in a manner that may be expected of an experienced director, acting reasonably, in those circumstances, it is likely that he or she is liable for the loss incurred. In that case the director or the de facto policymaker cannot hide behind the fact that he or she worked without remuneration, had been appointed only temporarily or had insufficient capabilities. That director or de facto policymaker is then fully liable.
1 Court of Appeal of ‘s-Hertogenbosch, 11 December 2018, ECLI:GHSHE:2018:5184
For more information or advice on this subject please contact Michiel van Haelst .