THE BOTTOM LINE
- Late filings aren’t fatal: Failing to file annual accounts on time creates a strong legal presumption of mismanagement in a bankruptcy, but directors can successfully challenge this.
- A strong counter-narrative is crucial: A director can escape personal liability for a company’s deficit by demonstrating that plausible business factors—such as market downturns, loss of key clients, or regulatory issues—were the primary cause of the failure.
- Reasonable business judgment prevails: Courts are reluctant to second-guess difficult decisions made by directors facing financial distress, provided those decisions were commercially rational at the time, even if they ultimately failed to save the company.
THE DETAILS
The curator’s case against the director of two bankrupt pet food companies seemed straightforward. Under Dutch law, if a director fails to publish annual accounts on time, the law presumes two things: that their management was “manifestly improper,” and that this mismanagement was a significant cause of the bankruptcy. This powerful legal tool reverses the burden of proof, making the director personally liable for the entire deficit unless they can prove otherwise. In this instance, the director had admittedly filed the 2016 and 2017 accounts late for the two entities, placing him directly in the legal crosshairs for the company’s multi-million-euro shortfall.
However, the director successfully rebutted this presumption by presenting a compelling alternative narrative. The Gelderland District Court accepted the director’s argument, supported by an expert report, that the companies failed due to a “perfect storm” of external and operational challenges, not mismanagement. Key factors included a sharp rise in raw material costs, the loss of major customers who refused to accept necessary price increases, an outdated and inefficient production facility, and mounting pressure from local authorities over a non-compliant ammonia installation which effectively halted a key production line. The court found these factors were credible and substantial enough to be considered a major cause of the companies’ ultimate collapse.
With the legal presumption neutralized, the burden shifted back to the curator to prove that the director’s conduct was still so poor that no reasonable director would have acted the same way. The court systematically dismissed the curator’s remaining arguments. Decisions such as winding down the unprofitable businesses, selling assets at their appraised value to repay secured creditors, and trying to find new suppliers for key clients were deemed reasonable, albeit unsuccessful, business judgments made under immense pressure. The court refused to hold the director liable for strategic choices that failed in a harsh commercial environment, ultimately clearing him of all claims and ordering the curator to pay legal costs.
SOURCE
Rechtbank Gelderland
