Liability of the actual policymaker

Liability of the director regarding a shortfall of assets
Under the provisions of section 248 subsection 1 of book 2 of the Dutch Civil Code (DCC), on the bankruptcy of a company each director shall be jointly and severally liable to the estate for the amount of the liabilities, to the extent that these cannot be satisfied out of the liquidation of the other assets, if (a) the management has manifestly performed its duties improperly and (b) it is plausible that this is an important cause of the bankruptcy

Exculpation of the director
Under section 248 subsection 3 of book 2 DCC, a director shall not be liable if he proves (a) that the improper performance of the management’s duties is not attributable to him and (b) that he has not been negligent in taking measures to avert the consequences thereof.

Reliance on reduction
A director may rely on the reduction of the amount for which he is liable (section 248 subsection 4 of book 2 DCC). The nature and the seriousness of the improper performance are thereby considered, and the other causes of the bankruptcy and the manner in which it is liquidated. Furthermore, the time during which the director was in office in the period during which the improper performance took place can be relevant (was the director in office during the entire period or only part thereof?)

Actual policymaker
The above also counts for a person who, although not formally, is a director of the company but who has determined the policy of the business of the company as if he were director (section 248 subsection 7 of book 2 DCC). Such a person is also designated as “actual policymaker” or “actual manager” and is equated to a director.

Glascentrale-case
The case which lead to the ruling of the Dutch Supreme Court of 6 March 2015 (ECLI:NL:HR:2015:522), the bankruptcy trustees of Zuid-Hollandse Glascentrale Beheer B.V. and its operating companies (“Glascentrale companies”) claimed that the directors and the actual policymakers of the Glascentrale companies must be ordered to pay the deficit in the bankruptcies of these companies.

Court ruling
The court ordered the directors jointly and severally to pay the deficit in the bankruptcies of the Glascentrale companies. It established that the improper performance of the management’s duties was an important cause of the bankruptcies of the Glascentrale companies, also (a) in view of the level of the management fees (which vary strongly annually), compared with the results of the companies, as a result of which the financial strength was seriously impaired and (b) because the 2004 financial statements had not been published and the 2013 financial statements, although being published, had not complied with the legal prescriptions.

With regard to the spouse of one of the directors involved in the Glascentrale companies, the court ruled that she must be considered an actual policymaker for the period 1 November 2005 until 31 March 2006 and must therefore be equated to a director.

The actual policymaker then relied on exculpation. The court, however, ruled that the actual policymaker did not take all possible measures to improve the solvency position, and did not make an effort to see to it that the 2003 and 2004 financial statements were published in time and according to the regulations.

What is more, the actual policymaker also relied on the reduction of the amount for which she is liable, because she had only been the actual policymaker during a small part of the relevant period. The court honoured that reliance and ordered the actual policymaker, in proportion to the period in which she actually took over the management, to pay 14% of the total shortfall in assets.

Court of Appeal ruling
In the appeal, the Hague Court of Appeal rejected the trustees’ claim against the actual policymaker. The Court of Appeal held that the trustees mentioned the high management fees as most important cause for the bankruptcies. According to the Court of Appeal, these fees were already a reality before the actual policymaker started her work. She was not responsible for the earlier decision-making on the payment of those fees.

The Court of Appeal ruled that it should have been up to the trustees put forward arguments that make it at least plausible that the actual policymaker has failed to such an extent that as a result thereof, the bankruptcies had also been caused by this. Such arguments were lacking, and the claim against the actual policymaker was therefore rejected by the Court of Appeal.

Supreme Court ruling
The trustees then lodged an appeal to the Supreme Court and argued that the Hague Court of Appeal wrongly failed to establish if the actual policymaker has proven (a) that the improper performance of the management was not attributable to her and (b) that she was not negligent in taking measures to avert the consequences thereof.

The Supreme Court agreed with this reasoning, set aside the judgment from the Hague Court of Appeal and referred the case to the Amsterdam Court of Appeal for further consideration.

Time will tell how the case regarding the actual policymaker is going to end, but it could be that the Amsterdam Court of Appeal establishes still, on the basis of the facts and arguments, that the actual policymaker has provided the proof mentioned above, with the consequence that the claims against the actual policymaker will be rejected again.

Should the above give rise to any questions, please contact mr. J.J. (Ian) Linker.

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