Directors’ and Officers’ Liability for Late Registration in the Trade Register
Supreme Court, 28 January 2011, RvdW 2011/171
Pursuant to Section 2:180 (2) of the Dutch Civil Code (“DCC”),
directors are jointly and severally liable for each juridical act
performed by the company before it has been registered in the Trade
Register, or before the minimum capital has been paid up. These
far-reaching liability entails that directors may be held liable
for performance of agreements concluded by the company in the said
period. Legislative history advises cautious directors to wait
until the filing of the initial registration has been lodged before
undertaking any serious obligations. Also when the new "Flex
BV" will be introduced, this section of the Civil Code will
remain in force.
The Supreme Court judgment focuses primarily on the question of
whether it is always necessary to apply directors’ and officers’
liability as envisaged in Section 2:180 (2) of the Civil Code
strictly, or whether this section of mandatory law may not apply in
the event of special circumstances, on the basis of the standards
of reasonableness and fairness.
The Facts
The case in which this judgment was rendered was as follows.
Immediately after a company had been incorporated, a bank concluded
a credit agreement with that company before the civil-law notary
who had just done the incorporation. The bank agreed to the
immediate provision of the credit on that very day. Two days later,
the notary lodged a filing of registration of the company at the
Trade Register. The company was registered five days after its
incorporation. Barely two years after that, the company went
bankrupt. After the security interests had been sold up, a claim
from the bank amounting to 3.8 million euro still remained. The
bank held the director and his management company liable for this
residual debt on grounds of Section 2:180 (2) of the DCC. The
director defended himself by arguing, among other things, that this
liability was unacceptable with a view to the standards of
reasonableness and fairness.
Court of Appeal
The Court of Appeal held that there was room to
apply the standards of reasonableness and fairness, and ruled that
the reliance by the bank on Section 2:180 (2) of the DCC was in
this case unacceptable by standards of reasonableness and fairness.
What the Court of Appeal in fact said was that in this particular
case, the bank did not deserve third-party protection; after all
the bank had been closely involved in the incorporation of the
company, and had agreed to the provision of the credit even before
the registration had been made. Moreover, the filing of
registration of the company had been lodged within two days from
the incorporation. Consequently, the director could not be blamed
for anything in this respect.
The Supreme Court
The Supreme Court upheld the opinion of the Court
of Appeal. The Supreme Court held first and foremost that,
considering the wording of this article and legislative history,
this Section serves not only to protect the interests of third
parties trading with the company, such as the bank in this case,
but it also serves the public interest in respect of compliance
with the obligation of directors to register with the Trade
Register in order to ensure well-organized legal transactions and
to facilitate repressive government supervision. Although this
Section is of mandatory law, it is not of public order, as it is
not intended to protect public interests of a fundamental
nature.
The Supreme Court concluded that a mandatory rule of law (such
as the Section at issue) may be corrected by reasonableness and
fairness, but that high standards must be set on the grounds for
the court's opinion. In this case, the opinion of the Court of
Appeal met these high standards. This is not altered by the fact
that in its adjudication the Court of Appeal only considered the
protection of third parties, and not the public interest.
A Lesson for Practice
In a defense against claims brought on grounds of Section 2:180 (2)
of the DCC or other provisions of Book 2 that are not of public
order, the restrictive effect of the standards of reasonableness
and fairness may lend a helping hand. However, it is still always
advisable – as legislative history also emphasizes – for cautious
directors to postpone undertaking any serious obligations until the
registration in the Trade Register has been completed. In the case
discussed above, this would have prevented proceedings up to the
Supreme Court, with costs likely to be high.