Maxim Hodak discusses the pitfalls of directors' and shareholders' liability in the Dutch corporate law

Directors and shareholders play an important role in successes and failures of a company. Attorney-at-law Maxim Hodak foresees increase in bankruptcies in view of the impending economic recession.

By law, the board of directors performs legal acts, such as entering into contracts, acquiring property and debt, or initiating lawsuits. Generally, directors of the Dutch private limited company (BV) are not personally liable for these acts with their private assets. Sometimes directors are accused of mismanagement and are liable with their personal assets.

The risk of personal liability always exists. There are two main types: internal and external liabilities. External liability holds the director liable towards third parties (e.g., suppliers and customers). Internal liability is responsibility to the company for negligence or mismanagement.

The Dutch Civil Code considers mismanagement responsibilities such as activities, their nature, risks, division of tasks within the board and administration. The use of information for decision making and assesment also affects the outcome of the case. Activities contradicting the articles of association can lead to liability and even director's resignation.

Actions that can be considered as mismanagement is extensive. It includes major decisions, acts and finances such as withdrawal of company assets, using them as private, mixing private and corporate matters and competing with the company. Unauthorized binding of the company to third parties, large financial risks and decisions with far-reaching consequences can be regarded as improper management. Transactions exceeding the financial resources of the company can be treated as irresponsible and may lead to liabilities. In addition,