Pursuing director liability is moving faster
To what extent can a director of a legal entity be held liable for a tortious act towards a creditor? This question was recently addressed by the Supreme Court. On February 17, the Supreme Court ruled in a case concerning the extension of liability from one of the directors to the responsible directors of that legal entity.
The case concerns a South African fruit exporter that supplies grapes to a Dutch company managed by two brothers. One brother is responsible for the financial and strategic affairs. The other brother oversees the day-to-day operations of the company.
Tort
In 2005, the fruit exporter filed a claim for nearly one million euros in damages against the company due to customs fraud. However, it proved impossible to collect the damages, as the company’s assets had been withdrawn shortly before. The fruit exporter then filed a lawsuit, and the Dutch company and one of the brothers, as director, were held liable for tort. In the appeal, the South African company argued that the other brother should also be held jointly and severally liable for tort under Article 2:11 of the Dutch Civil Code.
Director’s liability
This case centers on Articles 2:11 of the Dutch Civil Code (liability of a legal entity) and 6:162 (tort).
Article 2:11 of the Dutch Civil Code states: “The liability of a legal entity as a director of another legal entity also rests jointly and severally with anyone who is a director of that legal entity at the time the liability of that legal entity arises.”
Article 6:162 states: “A tort occurs if (I): a right is infringed, (II): a legal obligation is violated, or (III): due care is exercised.”
Reproach
According to the Supreme Court ruling, Article 2:11 of the Dutch Civil Code applies in all cases in which a legal entity is legally liable as a director . This includes cases involving an unlawful act. Therefore, the liability of a director of a legal entity is not subject to the additional requirement that the director be personally sufficiently attributable to serious blame. However, the director of a legal entity can avoid liability under Article 6:162 of the Dutch Civil Code by demonstrating that they are not personally attributable to serious blame.
Conclusion
The Supreme Court’s ruling appears to be aimed at preventing a natural person from hiding behind the legal personality of a company. This is particularly important if creditors are at risk of being disadvantaged as a result of poor or improper management.
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