THE BOTTOM LINE
- Corporate restructuring is not inherently unlawful: Liquidating a subsidiary with ongoing contracts may not create director liability if another group company seamlessly and de facto continues the business relationship, preventing any actual damage to the counterparty.
- Communication is key, but not always decisive: While failing to formally notify a long-term partner of a corporate change is poor practice and can invite litigation, the court found it was not a wrongful act in itself, as the practical reality of the business relationship remained unchanged.
- Substance over form in contracts: Courts will look beyond the formal addressee on a letter to determine who the actual parties to an agreement are. A long-standing representative can bind their company, even if a termination notice is addressed to them personally.
THE DETAILS
This case serves as a crucial reminder for directors managing corporate structures and long-term partnerships. The dispute arose after a Dutch horticultural group, Dalsem, liquidated one of its sales companies, Dalsem Horticultural Projects B.V. This company had a long-standing Letter of Intent (LOI) with a Turkish agent who was responsible for sourcing projects in Turkey in exchange for a commission. As part of an internal restructuring, Dalsem Horticultural was dissolved, and its activities were transferred to a sister company, Dalsem Greenhouse Projects B.V. The Turkish agent was never formally notified of this change and subsequently sued the director of both companies, Dalsem Beheer B.V., for acting unlawfully.
The District Court of The Hague first examined whether the “silent liquidation” constituted a tort. The plaintiff argued that dissolving their contractual counterparty without notice was a breach of the duty of care. The court acknowledged that formally notifying the partner would have been the proper course of action. However, it concluded that the omission did not make the liquidation unlawful in this specific context. The determining factor was that the business relationship continued without any practical interruption. The sister company effectively stepped into the liquidated firm’s shoes, the same individuals remained the points of contact, and the agent’s ability to earn commissions was unaffected. In essence, because there was no tangible harm, there was no wrongful act.
The court then addressed the termination of the relationship itself. Two years after the restructuring, Dalsem Greenhouse formally ended the partnership and paid a €20,000 termination fee. The plaintiff argued this termination was invalid because the agreement was addressed to their representative personally, not to the company. The court dismissed this argument by looking at the substance of the relationship. Applying established Dutch contract law principles, it reasoned that the parties’ mutual understanding and past conduct were decisive. Since the representative had been the sole point of contact for over a decade and the agreement’s text clearly aimed to end the “contract of representation in Turkey,” it was evident he was acting on behalf of his company. The court found the termination was valid, the goodwill fee was duly paid, and consequently, all claims against the director were dismissed.
SOURCE
Source: Rechtbank Den Haag (District Court of The Hague)
