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Caspar Scholten has written another annotation for JOR (november 2016)

08.11.2016

Mitigating directors’ liability for deficits after a bankruptcy

Caspar Scholten has written another annotation to an article in JOR, a leading Dutch case law journal. The article discussed a ruling by the District Court of The Hague that a director of a bankrupt company was personally liable for the deficit (section 2:248(1) of the Netherlands Civil Code). He had been found guilty of manifest mismanagement: the annual accounts had e.g. not been published as required and the paperwork was chaotic (some of the bookkeeping had even been destroyed). The District Court had carefully considered the facts and circumstances which the director had unsuccessfully claimed in his defence, and Caspar Scholten focuses on the court’s leeway to mitigate the director’s liability.

A court can mitigate the liability of an entire executive if it believes it would be dis­pro­portion­ate, but the nature and gravity of the negligence and mismanagement, the other factors contributing to the bankruptcy and the way in which it proceeded are decisive for this alternative ‘collective’ approach. Dutch law also offers the scope to mitigate the liability of individual directors, but only taking account of the period in which that director was in office within the period in which that mismanagement occurred. The facts of this particular case offered little scope for mitigation, but this director has been given a second chance: the liability can also be mitigated in the separate follow-up proceedings (the damages assessment procedure) when the court will decide how much the director is required to pay.

 

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