News

Liability for Second-degree Directors

In our previous Newsletter, of April 7, 2017 it was explained that under Dutch Caribbean law a director of a legal entity may only be held liable under strict circumstances. The law allows directors a certain amount of discretion in fulfilling their responsibilities as a director. Only in the case of, for example, improper performance of one’s duties or bankruptcy of the legal entity, liability of the director may arise.

A director of a legal entity can be either a natural person or another legal entity. If a legal entity is managed by another legal entity (the so-called first-degree director), this legal entity will in turn be managed, whether directly or indirectly, by a natural person. Under Dutch Caribbean law, a legal entity’s liability as a director of another legal person also rests (jointly and severally) on those who had been a director of such at the time the liability of the legal person arose. This continues until the last director has been reached. The second-degree (or as many degrees as applicable) director is, eventually, a natural person. This form of liability intends to prevent natural persons from being able to avoid director’s liability through the interposition of a legal entity-director.

In a recent case, the Supreme Court ruled that this so-called second-degree liability applies in all cases where a legal entity, in its capacity of director, is liable pursuant to the law, such as in the case of an unlawful act. In its decision, the Supreme Court stated that there is no additional requirement that the natural person behind the legal entity-director must also be attributed sufficiently serious personal blame. This means that in principle there can also be (joint and several) liability of the second-degree director without it being apparent that serious blame can be personally attributed to him.

However, this ruling of the Supreme Court is without prejudice to statutory possibilities of the second-degree director to (as yet) avoid liability. The second-degree director who pursuant to the statutory provision from which the liability arises has a ground for exculpation, can rely on this, independently of the legal entity-director. Whether a statutory provision from which liability arises offers the option of exculpation, must be determined by the interpretation of the provision concerned.