The Bottom Line
- This ruling sends a clear message that auditor risk can be long-lasting. Auditors may be held accountable for negligent work years after a company’s collapse, especially when a professional disciplinary body has already confirmed their failings.
- An auditor’s own conduct—such as engaging in settlement talks—can prevent them from using time-bar defenses. Dutch courts can set aside these defenses based on the principles of reasonableness and fairness.
- Even a small lawsuit can be a powerful strategic tool. Bankruptcy trustees can be authorized to sue an auditor if the legal action is necessary to unlock larger settlements with other parties, like former directors.
The Details
This case stems from the 2014 bankruptcy of a Dutch public company. The appointed trustees investigated the collapse and identified potential negligence by the company’s auditor, Ernst & Young (EY), regarding the 2012 financial statements. After a disciplinary court found the individual accountant at fault, the trustees prepared to sue EY to recover audit fees and investigation costs. However, they paused the lawsuit to focus on complex settlement negotiations with the company’s former directors and supervisory board members.
EY’s primary defense was that the trustees had waited too long, arguing the claim was barred by both the statute of limitations and a one-year clause in its own general terms. The trustees countered that this defense was invoked in bad faith. They argued that EY was fully aware of the broader settlement strategy, had previously indicated a willingness to negotiate, and only raised the time-bar defense after years of communication. According to the trustees, this conduct violated the principles of reasonableness and fairness.
The supervisory judge sided with the trustees, granting them authorization to proceed with the lawsuit. The judge reasoned that the trustees had a strong chance of success, both because the disciplinary court had already confirmed the auditing failures and because a civil court would likely find EY’s last-minute invocation of the time-bar unacceptable. Critically, the judge found the lawsuit was necessary for the benefit of all creditors. The outcome of the case against EY is a key factor in finalizing settlement talks with the company’s former management, making it a crucial step in the bankruptcy’s overall resolution.
Source
Rechtbank Midden-Nederland
