THE BOTTOM LINE
- Personal Debts, Corporate Consequences: Directors can be held personally liable for their company’s debts if they deliberately prevent payment to creditors, for example, by failing to repay their own significant loans from the company.
- Scrutiny of Director’s Loan Accounts: Maintaining a large, unpaid director’s loan account (rekening-courant) creates a major personal liability risk, especially when the company is unable to pay its own bills.
- “Ability to Pay” is Key: A court will scrutinize a director’s personal financial capacity, including assets like cryptocurrency investments, to determine if they could have enabled the company to meet its obligations. Excuses for not liquidating personal assets are unlikely to succeed.
THE DETAILS
This case began when a contractor, owed over €277,000 by a renovation company following a court judgment, found the company unable to pay. The contractor took the significant step of suing the company’s sole director and shareholder personally, alleging she was responsible for the company’s empty coffers. While a lower court initially sided with the director, the Hague Court of Appeal has now reversed that decision, providing a stark reminder of the boundaries between corporate and personal responsibility.
The Court of Appeal’s ruling hinged on the high-stakes test for director’s liability known as “betalingsonwil” or “unwillingness to pay.” This occurs when a director can be seriously blamed for causing or allowing their company to default on its obligations. The court distinguished this from situations where a director enters a contract the company cannot fulfill from the outset. Here, the focus was on the director’s actions after the debt was established, which effectively frustrated the contractor’s ability to get paid.
The decisive factor was the director’s large and long-standing personal debt to her own company, which stood at €173,487. The court found that by failing to repay this loan, the director directly deprived the company of the liquid funds needed to (at least partially) satisfy the contractor’s claim. The director’s argument that she was unable to pay was flatly rejected, as she admitted to holding a personal cryptocurrency portfolio worth between €250,000 and €300,000. Her failure to liquidate these assets to settle her corporate debt was deemed a “serious personal reproach,” making her personally liable for the damages. However, the court capped her liability at the amount of her personal debt to the company: €173,487.
SOURCE
Source: Gerechtshof Den Haag (The Hague Court of Appeal)
