Sound management is expected of directors and supervisors. But the impact of board decisions on a company isn’t always easy to predict. If a decision regarding, for example, an acquisition, investment, collaboration or financing later turns out to be wrong, the personal liability of directors and supervisors is also subject to discussion. More so today than in the past.
Liability in the event of financial heavy weather
Particularly in the case of companies in financial difficulties, policy choices can later lead to people blaming management. Such cases of (threatened) discontinuity place exceptional demands on good governance, as there is then insufficient liquidity for timely payment of all creditors, and choices have to be made under great pressure about the continuation of the company, the payment of creditors and the use of restructuring instruments. Whereby the director runs the risk of personal fiscal, civil and/or criminal liability.
Stakeholders are increasingly willing to challenge directors. In addition, legislation has broadened the grounds for directors’ liability. So that since 2021, directors and supervisors of foundations and associations are more likely to be found liable in the event of bankruptcy. And the Dutch Data Protection Authority (Autoriteit Persoonsgegevens) can, on the basis of the GDPR (General Data Protection Regulation, 2018), fine directors if a company acts in violation of the GDPR.
The importance of sustainable business practices
Directors and supervisors of large but also smaller organisations also need to take into account the influence of developments in society. Good corporate governance is today one of the three pillars of sustainable business practices (ESG: Environmental, Social and Governance). Views regarding the purpose of a legal person, and the tasks, responsibilities and liabilities of bodies and members of those bodies are changing. This is reflected in the inclusion of ESG in the proposal for the amendment of the Dutch Corporate Governance Code (2022) and in the draft EU guidelines on Corporate Sustainability Due Diligence (2022). But already there has been an increase in legal proceedings against directors personally in order to hold companies accountable on issues such as climate change (see ClientEarth vs. the directors of Shell).
Davids Advocaten helps boards and supervisors through these complex situations. In the preliminary phase to prevent/limit liability and in court in defending against claims of liability.
Want to know more?
In this brochure, we provide a brief explanation of this topic and outline cases where we have been involved. Our specialists would gladly offer you specific advice on the risks and responsibilities that come with your position as director or supervisor.