International Law

LIABILITY OF DE FACTO MANAGING DIRECTORS IN THE DUTCH CARIBBEAN

By Karel.Frielink

Policy maker can be held liable

As a general rule a corporation in the Netherlands Antilles is a legal entity distinct from its shareholders. In terms of liability for mismanagement the law focuses on the managing directors as well as other persons who actually ?act as managers? (a.k.a. policy makers or de facto managing directors).

Most legal commentators take the view that instructions from a parent company to a subsidiary do not, as such, constitute “management” in the above sense. However, statutory language is ambiguous and there is no Netherlands Antilles case law on this issue. Those who ?act as managers? run (part of) the company as if they are the managers. They are, so to speak, in direct control, mainly through instructions given to the managing directors and more or less enforcing the execution thereof. In these cases one could say that the managing directors act as puppets, manipulated by the controlling shareholder.

Corporate shareholders can, generally speaking, be held liable for subsidiary obligations, e.g., when the subsidiary is being operated in an unfair manner (profits accumulate in the parent and losses in the subsidiary), or when the subsidiary is consistently represented as being part of the parent, or when the parent and the subsidiary are essentially operating the same integrated business, and the subsidiary is undercapitalized. In other words: a corporate shareholder can be held liable if it uses a subsidiary such that rights of third parties are abused. The examples given show that only in case of wrongdoing (tort) can the shareholders be held personally liable.

Karel Frielink
Attorney (Lawyer) / Partner

Full post as published by Karel's Legal Blog on August 12, 2008 (boomark / email).