Key Takeaways
- De Facto Liability is Real: Dutch courts will look past formal appointments to hold de facto (or “shadow”) directors criminally liable for corporate wrongdoing. Using a spouse or associate as a figurehead director offers no protection.
- Bookkeeping is a Criminal Matter: Failing to maintain a complete and accurate administration is not merely a civil liability risk. In bankruptcy, it can become a criminal offense leading to significant prison time if it obstructs the curator’s work.
- Benefit Fraud Magnifies Risk: Concealing business income to wrongfully claim state benefits is a serious crime. The court combined this with bankruptcy fraud to issue a stern sentence, including a repayment order for approximately €250,000 in benefits.
The Details
In a case with critical lessons for business leaders, the Court of Appeal in ‘s-Hertogenbosch has sentenced a businessman to 18 months in prison for a dual scheme of bankruptcy and benefits fraud. The man acted as the de facto director of two furniture companies formally registered in his wife’s name. When one of the companies went bankrupt, the subsequent investigation uncovered not only severe administrative failings but also a long-running fraud against the Dutch employee insurance agency (UWV), from which the director had been claiming disability benefits for years while actively running his businesses.
The court’s reasoning pivoted on establishing the defendant as the “feitelijk bestuurder,” or de facto director. Despite his wife being the sole registered director, witness testimony from the company’s accountant, employees, and even the bankruptcy curator painted a clear picture. The defendant handled all key negotiations, hired staff, gave instructions, and was the primary contact for all business matters. The court noted that during meetings with the curator, his wife knew virtually nothing about the business, constantly looking to her husband for answers. This judgment reaffirms a crucial principle: courts will pierce the corporate veil to identify and hold accountable the individuals who are actually in control, regardless of what official registers say.
Ultimately, the conviction rested on two pillars. First, the court found the defendant guilty of bankruptcy fraud for intentionally failing to keep a proper administration. The lack of accurate records on inventory, payroll, and cash flow made it impossible for the curator to determine the cause of the bankruptcy or to secure assets for creditors. This, the court ruled, deliberately hampered the settlement process. Second, he was convicted of benefits fraud for knowingly failing to report his business income to the UWV, resulting in approximately €250,000 in wrongfully paid benefits. The court handed down a stern 18-month prison sentence, 12 months of which are unconditional, citing the defendant’s prior convictions for similar offenses and his complete lack of remorse as aggravating factors.
Source: Gerechtshof ‘s-Hertogenbosch
