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Liability of Directors

If a managing director acts in a manner that may later turn out to be detrimental to the company, this does not automatically lead to personal liability. Taking calculated risks is, after all, part of running a business and being an entrepreneur, so the law allows managing directors a certain amount of discretion in fulfilling their responsibilities as a managing (or “statutory”) director.

Dutch Caribbean law requires managing directors to fulfill their duties towards the legal entity with due care and attention. Should they fail this duty of care, then the managing directors are personally liable for any damage caused to the company as a result thereof. The Supreme Court has ruled that such is the case if the directors have acted in a manner that constitutes serious misconduct. The Supreme Court holds that if the actions of the managing directors held liable would not have been taken by any other reasonably acting and experienced managing director in their stead, then this constitutes serious misconduct.

Examples of circumstances wherein managing directors have been held liable by their company are:

  • Diverting the company’s funds for personal use;
  • Fraudulent or illegal practices;
  • Taking large and unsecured financial risks.

Dutch Caribbean law not only covers the managing directors’ personal liability towards the company itself. In certain circumstances, creditors of the company can also hold the managing directors separately liable for damage resulting from actions taken during their directorship, such as providing incorrect information or making promises on behalf of the company that they knew the company could not fulfill.

Should a company be declared bankrupt, then Dutch Caribbean law provides the trustee in the bankruptcy with the means to hold the company managing directors personally liable on additional grounds. E.g. the law states that each managing director shall be jointly and severally liable to the bankruptcy estate for the amount of the company’s debts that cannot be satisfied out of the liquidation of its assets if the management has manifestly performed its duties improperly and it may be assumed that these actions constituted an important cause of the bankruptcy. This is presumed to be the case when, inter alia, the books and accounts of the company have not been kept in accordance with good accounting practices and do not provide a true insight into the financial position of the company. In such cases the burden of proof is shifted to the managing directors, who must then prove that their failure to file the accounts or administrate properly did not constitute an important cause of the bankruptcy. Should the trustee believe that persons who are not officially directors, but can be deemed to have run the company, are largely responsible for the bankruptcy, Dutch Caribbean law provides that the trustee may hold these persons liable in the same manner as the actual company directors.

Finally, directors can also be held personally liable for unpaid tax debts of the company, in such cases where the directors have not reported the inability of the company to pay to the tax authorities. This form of liability regards taxes such as wage withholding tax and VAT. Once the tax authorities have made a director liable for overdue taxes imposed on company, it is up to the director to prove that the tax debt was left unpaid for reasons not attributable to him. Fiscal liability often occurs after bankruptcy, as the company is then no longer able to pay its own tax debts.