The Bottom Line
- Increased Personal Risk: Directors and CEOs could face a higher risk of being held personally liable for company debts if they continue trading while the company is in financial distress.
- Stricter Oversight Required: The opinion suggests that passive reliance on financial reports or automated systems may no longer be a sufficient defense; active, critical inquiry by management is expected.
- Shift in Legal Standard: If the Supreme Court follows this advice, it could lower the traditionally high bar for proving a personally serious reproach, making it easier for creditors to sue directors successfully after a bankruptcy.
The Details
In an influential advisory opinion, the Advocate General (AG) of the Dutch Supreme Court has recommended a stricter interpretation of directors’ liability. The case involves a technology company that went bankrupt, leaving significant debts. Creditors sued the former CEO personally, alleging he allowed the company to incur new obligations at a time when he knew, or should have known, that the company could not meet them and offered no recourse for recovery. This is a classic wrongful act claim against a director under Dutch law.
The core of the AG’s reasoning is a modernization of the standard for what constitutes a personally serious reproach—the high threshold a claimant must meet to hold a director liable. Historically, Dutch courts have been reluctant to find personal liability, seeking to avoid defensive management. However, the AG argues that in today’s complex business environment, a director’s duty of care demands more than a surface-level review of financial statements. Simply continuing operations based on optimistic but unsubstantiated recovery plans, especially when new, unsecured debts are being created, can meet this high standard for liability.
This opinion signals a potential shift from what a director subjectively knew to what they objectively should have known. The AG emphasized that a director cannot simply delegate financial oversight or hide behind complex forecasting models without applying critical judgment. If the Supreme Court adopts this reasoning, it will serve as a stark warning to boards and CEOs: when your company is navigating financial trouble, the decisions you make carry significant personal weight, and the courts will expect you to demonstrate diligent, hands-on, and realistic leadership.
Source
Prosecutor General’s Office at the Supreme Court of the Netherlands
