THE BOTTOM LINE
- Personal Liability Risk: Directors can be held personally liable for their company’s debts if they commit to contracts knowing, or reasonably foreseeing, that the company will be unable to pay.
- “Turbo-Liquidation” is No Escape: Quickly dissolving a company with no assets (a “turbo-liquidation“) will not protect directors from claims arising from actions taken before the company was dissolved.
- Proof is Paramount: To avoid personal liability, directors must be able to prove their company was engaged in genuine commercial activity and had a realistic prospect of meeting its financial obligations. Poor record-keeping and significant private withdrawals can be fatal to such a defense.
THE DETAILS
In a cautionary tale for directors, the Rotterdam District Court has reinforced the principle of director’s liability. The case involved a supplier, B.O.S. Kozijnen, which sold and delivered window frames to a company in 2018. The company never paid its bill of nearly €10,000 and was later dissolved through a fast-track “turbo-liquidation.” B.O.S. then pursued the company’s directors personally, arguing they must have known the company was an empty shell when it placed the order. The court agreed, shifting the burden of proof to the directors. It was now up to them to demonstrate that their company was a legitimate, active business capable of paying its debts at the time.
The directors’ defense rested on a single large construction project as evidence of the company’s viability. They presented bank statements showing payments received for this project. However, the court found this evidence unconvincing. Crucially, the directors failed to produce a written contract, a formal quotation, or any financial documents to substantiate the project’s profitability. Without these records, the court could not determine if there would have been sufficient funds remaining to pay B.O.S. after accounting for the project’s own costs, such as materials and subcontractors.
The deciding factor against the directors was the state of the company’s finances. The court noted that one director had made substantial private withdrawals from the company account, amounting to roughly half of the total revenue from its sole project. This action, combined with the lack of proper documentation and evidence of any other business activity, convinced the court that the directors had committed the company to a purchase they knew it could not afford. As a result, they were held personally liable for the debt owed to the supplier.
SOURCE
Source: Rechtbank Rotterdam
