The Bottom Line
- High Bar for Liability: Directors are not automatically personally liable for a company’s breach of contract or unpaid debts, even if the company later goes bankrupt. The Dutch legal standard requires proof of “serious personal blame,” a threshold this ruling reinforces as exceptionally high.
- Reliance on Experts is a Key Defense: Making aggressive commercial decisions, such as calling a bank guarantee, is defensible if directors can show they acted on the basis of professional legal and technical advice. The court found this negated claims of recklessness.
- Commercial Disputes vs. Director Misconduct: A director’s duty is to act in the company’s best interest. Taking firm action in a legitimate commercial dispute—even if that action ultimately harms a supplier and is later ruled incorrect in arbitration—does not, by itself, constitute personal misconduct.
The Details
The case centered on a major industrial project gone wrong. A German engineering firm was contracted to build a specialized factory for a Dutch company. When the Dutch company became dissatisfied with the factory’s performance, its directors withheld payments, terminated performance tests, and ultimately drew down a €3.9 million bank guarantee. Over a year later, the company went bankrupt. The German firm, facing over €7 million in losses, sued the two directors personally, alleging they acted unlawfully by making these decisions while knowing—or being reckless as to whether—the company could not ultimately cover its debts.
The District Court of Midden-Nederland rejected the claim entirely, focusing on the high standard required for directors’ liability under Dutch law. The court reiterated that liability is not automatic; a claimant must prove the director is guilty of “serious personal blame.” This means showing either that the director entered into obligations knowing the company could not honor them and would offer no recourse for the damage, or that their actions were otherwise exceptionally reckless. The court found that the directors’ actions did not meet this demanding standard.
The court’s reasoning provides a clear roadmap for corporate governance. Crucially, the directors demonstrated they were not acting in a vacuum. They had received technical reports from an expert firm (DNV) indicating the factory was severely underperforming. Furthermore, they had sought and followed legal advice from their lawyers, who confirmed they had grounds to dispute payments and call the guarantee. The court ruled that directors are entitled to rely on such professional advice. Even if an arbitration panel later disagreed with their company’s legal position, the directors’ reliance on counsel at the time of the decision was reasonable and not personally culpable. The fact that the company continued to operate for over a year after the events also undermined the claim that the directors knew bankruptcy was imminent.
Source
District Court of Midden-Nederland
