THE BOTTOM LINE
- The Dutch Supreme Court has upheld a lower court’s decision, making a director personally liable for actions taken just before a company’s bankruptcy.
- This outcome solidifies the significant legal risks associated with selective payments—paying some creditors while others go unpaid when insolvency looms.
- CEOs and directors are reminded that asset sales and other major transactions will face intense scrutiny from bankruptcy trustees if the company subsequently fails.
THE DETAILS
This case involved a company director sued by a bankruptcy trustee over several transactions made while the company was in severe financial distress. The core of the dispute revolved around claims of fraudulent conveyance (a legal action allowing a trustee to reverse transactions that harm creditors), preferential payments to certain creditors, and a specific land sale deemed detrimental to the company’s general body of creditors. The Court of Appeal had previously found the director personally liable for the damages caused.
The director appealed this decision to the Hoge Raad, the highest court in the Netherlands. In a concise ruling, the Supreme Court dismissed the appeal by applying a specific procedural rule (Article 81 of the Judiciary Organization Act). This type of dismissal is used when the Court determines that an appeal does not raise any legal questions important for the unity or development of the law, and that the complaints do not provide grounds to overturn the lower court’s decision.
While the Supreme Court’s judgment is brief, its impact is significant. By dismissing the appeal, the Court of Appeal’s ruling is now final and binding. For CEOs, directors, and their legal counsel, this serves as a critical confirmation of Dutch insolvency law: a director’s duty of care intensifies dramatically when a company nears insolvency. The focus must shift to preserving value for all creditors collectively. This ruling reinforces that actions perceived as self-serving or preferential will not be tolerated and can lead directly to personal financial liability.
SOURCE
Source: Hoge Raad
