Director liability — when does it reach you personally?

The starting point is that the company is liable and the director is not. Doing business involves risk, and a misjudgement does not by itself make you liable. Personal liability requires serious culpability. In practice it usually comes down to one of two situations. You took on new obligations while you knew or should have known the company could no longer meet them — known in Dutch practice as the Beklamel norm. Or you preferred certain creditors over others at a moment when there was no justification for it, known as selective payment. Both require an assessment of what you knew and when. There is also internal liability towards the company itself under article 2:9 of the Dutch Civil Code. If matters end in insolvency, the question of manifestly improper management is added, under article 2:248.

A well-known pitfall is hindsight bias and outcome bias. After the fact it is easy to conclude that things turned out badly. Make sure board and shareholder decisions are minuted, including the considerations and the information a decision was based on. Also record which forecasts you used, what advice you obtained and why at a given moment you believed the business could recover. A liability discussion is always about what you knew and when, and that question is far easier to answer in advance than afterwards.

Three positions get tangled together and need to be separated. Your position as a statutory director, your position as a manager or employee, and your position as a shareholder. They are often bundled into one conversation, to the advantage of whoever opens it. In practice there is room to renegotiate your terms as a manager while securing your position as a shareholder, even where the directorship cannot be retained. We have separated and settled those three tracks on a number of occasions.

Less often than the threat suggests. In practice it is mostly used as a threat — by a trustee, a creditor or a fellow shareholder trying to achieve something else with it. Actually pursuing a claim is expensive, slow and uncertain, and the threatening party usually knows this. But a claim likely to fail is not a threat that is easy to carry. Having it hanging over you is deeply unpleasant, and it stays that way even when you know your position is strong. Litigating costs time and money, but above all energy — energy you need elsewhere at that moment. It also almost always arrives at the worst possible moment and can turn a negotiation about something else entirely. Our work therefore rarely involves litigation. It involves assessing how strong the threat really is, and removing the ground beneath it as quickly as possible.

A D&O policy is useful but not a free pass. Policies contain exclusions, and the conduct that leads to a claim regularly falls within them. Cover is also often tied to when a claim is notified rather than when you acted. More important than the policy is usually whether the company has granted you discharge, and whether that discharge covers what the dispute later turns out to be about. We assess both together.