International Law

DUTCH CARIBBEAN COMPANIES AND LIABILITY ISSUES

By Karel.Frielink

Shareholders are not personally liable

Shareholders of an NV or BV are not personally liable for the liabilities of the company, except where this would be contrary to the law. With the exception of actions based on tort or when a shareholder may be held liable because he is considered a policy maker (see below), in general, the shareholders only obligation is to pay to the company the consideration for the share issue, i.e. a payment on the shares.

The members of the board of directors are personally and severally liable towards the company for any loss caused by the improper performance of duties (liability towards the company). Each member of the board, who proves that he cannot be blamed for such improper performance and that the activities concerned fall outside the scope of activities addressed to him, and that he has not been negligent in taking steps to avert the related consequences, is not liable. Therefore, a division of tasks among such members can influence the liability.

In the event of bankruptcy of a company being significantly caused by mismanagement, each member of the board of directors is liable to the bankruptcy estate for the deficit. Only the improper management in the three-year period preceding the bankruptcy (or a suspension of payments preceding the bankruptcy) shall be taken into account. The director may not claim that he was granted any form of discharge from liability by the company (Article 2:16(8) jo Article 2:14(5) Netherlands Antilles Civil Code).

If the board e.g. has not observed its obligation to keep accounts in good time, there is a statutory presumption of clear mismanagement. Unless the members of the board can prove that they cannot be blamed for not meeting such obligations, each member will be personally and severally liable for said deficit. It should be noted that any person or legal entity not being a member of the board but nevertheless (contributing to) determining the policy of the board, might face similar liability (policy makers).

The law does not require a company to file for bankruptcy once it becomes insolvent. Directors are generally not liable to creditors for debts of the company. However, creditors of the company may hold a director liable on the basis of tort if he entered into a transaction on behalf of the company while he knew, or should reasonably have known, that the company would not be able to fulfil the obligations arising from that transaction and the company would not have sufficient assets for the creditor to take recourse against. A director may also be personally liable on the basis of tort in the event that the company does not perform its obligations towards a creditor by refusing to pay rather than as a result of an inability to pay.

As far as directors? liability is concerned, the law focuses on the period that a director has been in office. A director cannot escape from liability for past actions or (gross) negligence by resigning from office. In practice, directors need not worry about liability, provided they observe the proper procedures and do not act recklessly or irresponsibly.

Karel Frielink
Attorney (Lawyer) / Partner

Full post as published by Karel's Legal Blog on July 08, 2008 (boomark / email).