THE BOTTOM LINE
- Personal liability isn’t just for official directors. Individuals acting as “de facto managers” of a sole proprietorship can be held personally liable for business debts if they knowingly enter into obligations the company cannot meet.
- Courts will look past formal structures. This ruling demonstrates a willingness to pierce the veil of informal business arrangements, such as “straw man” setups, to hold the true decision-makers accountable for irresponsible financial commitments.
- A new risk for informal managers, a new remedy for creditors. This decision creates a significant liability risk for those managing a business without a formal title, while offering creditors a potential new path to recover funds from insolvent sole proprietorships.
THE DETAILS
In a notable decision, a Dutch court has held the “de facto manager” of a sole proprietorship personally liable for unpaid invoices, applying a legal standard typically reserved for directors of limited liability companies. The case involved a law firm that provided services to a sole proprietorship. While the business was registered under one individual’s name, another person was clearly in charge—giving instructions, making financial decisions, and acting as the primary contact. When the invoices went unpaid, the law firm sued both the registered owner and this “shadow manager.”
The core of the manager’s defense was that she was merely an authorized representative (a proxy holder) and, therefore, not personally a party to the contracts. The court acknowledged her formal power of attorney but looked beyond it to the reality of the situation. It concluded she was the “feitelijk beleidsbepaler” (de facto policymaker) who had effective control. The court then made a crucial move by applying the Dutch “Beklamel norm” by analogy. This principle holds that a director who enters into an agreement on behalf of a company, while knowing (or being in a position where they should have known) that the company would be unable to pay, can be held personally liable for the resulting damages.
The court found that from a specific date, the de facto manager was aware of the company’s precarious financial state and should have known it would be unable to settle new bills. By continuing to commission legal services after this point, she acted negligently. Consequently, the court held her personally liable for all invoices generated from work commissioned after that date. This judgment serves as a stark reminder for business leaders: liability can follow control, not just titles. Individuals running a business from behind the scenes are not shielded from personal responsibility simply because it’s structured as a sole proprietorship under someone else’s name.
SOURCE
Source: Rechtbank Oost-Brabant
