By now it is more than clear that the corona crisis is having a major impact on business. Entrepreneurs see bankruptcy looming closer and are trying with all they have to keep their heads above water. In order to help entrepreneurs, the government is offering a package of financial support measures. For some entrepreneurs this is enough to get them back on their feet for a while, but how long can you carry on doing business without a stable perspective for the future?
Liability of managing directors
A director who continues to operate his company for too long, whereby a bankruptcy is inevitable, runs the risk of being held personally liable for the debts of the company. According to established case law of the Supreme Court, the director is liable if no reasonable thinking director would have acted in the same way under the same circumstances. Where is the boundary of improper management?
The Court had already ruled on similar situations at the time of the credit crisis. In one judgment the conclusion was that the management board was not liable, but in another judgment it was concluded that the management board was liable.
Without going into too much detail on the legal facts, it can be said that the actions of directors do not constitute liability as long as there is still a chance of survival. It is important that the administration is in order and that the choices made by the directors are adequately explained in management reports.
If these reports show that the company constantly searched for opportunities to improve its results and that it did not continue against its better judgement, there is a good chance that there will be no question of directors’ liability.
Things in order
Therefore, in times of crisis, make sure that the administration is in order, that the annual accounts have been adopted and filed on time, and prepare management reports setting out the considerations of the board.
Is it clear that the company will not survive the crisis, that creditors can no longer be paid and that the debts will only increase of the company continues? Then consider filing for bankruptcy and avoid directors’ liability. After all, bankruptcy is terrible enough.