Liability of directors of a limited company
According to Dutch legislation corporations are subject to the laws of the country of establishment of such corporations. However, under particular circumstances directors of branches of foreign corporations having a branch in The Netherlands can be held personally liable under Dutch law.
Civil liability
Dutch legislation rules that Article 138 of the 2nd Book of the Dutch Civil Code ('C.C.'), regarding the liability of directors in case of bankruptcy, also applies to foreign companies operating in The Netherlands, whenever:
- the company is subject to corporate income tax in The Netherlands and
- the company has been declared bankrupt in The Netherlands, i.e. by a Dutch Court.
The main criterion for taxation of branches of foreign companies in The Netherlands is the presence of a permanent establishment in The Netherlands.
A company can be declared bankrupt by a Dutch Court in case it has (or has had) offices (i.e. a permanent establishment) within The Netherlands. Although such declaration of bankruptcy will not have effect in other countries, it will be sufficient for application of the liability rule of Art. 2:138 C.C. mentioned above.
A bankruptcy can be declared upon request of a creditor if the company is unable to pay him and at least one other debt appears to be outstanding.
The first paragraph of the aforementioned Art. 2:138 C.C. provides as follows: "On the involuntary liquidation of a company limited by shares, each managing 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 the management has manifestly performed its duties improperly and it may be assumed that this is an important cause of the involuntary liquidation."
As far as relevant in the present context, the remaining nine paragraphs of the article provide that:
- in case the management has not complied with its obligation to keep proper books of the rights and obligations of the company and timely deposit the annual accounts of the company at the Chamber of Commerce, it has performed its duties improperly and it shall be presumed that the improper performance of its duties constitutes an important cause of the liquidation;
- however, a managing director shall not be liable if he proves that the improper performance of duties by the management is not attributable to him and that he has not been negligent in taking measures to prevent the consequences thereof;
- the Court may reduce the amount of the liability of an individual managing director if it considers the same excessive, having regard to the time during which such managing director was in office in the period during which the improper performance of the duties took place;
- a Court may reduce the amount for which the managing directors are liable if it considers the same excessive, having regard to the nature and seriousness of the improper performance, the other causes of the involuntary liquidation and the manner in which it is liquidated;
- an action may be instituted only on the ground of improper performance of duties in respect of the duties performed during a period of three years preceding the involuntary liquidation;
- this statutory liability is separate and independent from possible liability of a managing director based on non-fulfilment of the agreement between the company and the managing director.
The above also applies to local managers, i.e. those who are in charge with management of the operations in The Netherlands, even if they are not members of the Board of Management.
Fiscal liability
Under particular circumstances the director of a permanent establishment in The Netherlands of a foreign company can furthermore be held personally liable for tax debts of the company, in case such taxes are due to the Dutch Treasury and left unpaid.
This is a subsidiary liability: the primary debtor is of course the company itself. It is also the company itself that is primarily obliged to pay the taxes.
This director's liability regards all national taxes (as opposed to local taxes), such as corporate income tax, dividend tax, wage withholding tax and VAT (BTW), yet only taxes owed by the company itself to the Dutch tax authorities.
Once the tax authorities have made liable the director for overdue taxes imposed on the permanent establishment, it is up to the director to prove that the tax debt was left unpaid for reasons not attributable to him.
Liability for payment of national insurance contribution
A personal liability also exists with regard to payment of national insurance contributions and advance payments regarding such contributions: the manager of a permanent establishment in The Netherlands of a foreign company is jointly and severally liable for the national insurance contributions and advance contributions.
Liability from the law regarding the Trade Register
The Dutch law regarding the Trade Register provides that the person in charge with the (daily) management of a company having its registered seat outside The Netherlands is obliged to register the company properly as soon as the branch starts its operations (such as the name of the company, its registered seat outside The Netherlands, the personal data regarding the managers and members of the supervisory board of the foreign company). If such person does not fulfil this obligation, in theory he might be prosecuted for an offence for which there is a severe penalty.