Are directors of veterinary chain Evidensia liable for unpaid pension contributions?

Yesterday, NRC published a revealing article stating that private equity-run Evidensia has not been paying the pension contributions of its affiliated veterinarians for years. This is not without risk. Under certain circumstances, directors can be held personally liable for this. In the first part of this blog series, I will discuss the legal options for the pension fund. In the second part, I will discuss the options available to affected employees.

Pension deficit

According to newspaper articles, Evidensia failed to pay pension contributions for more than 400 of its employees for more than six months in 2022 and 2023. The deficit in this case is estimated to be more than half a million euros.

Well-known examples

Misuse of pension contributions occurs frequently, particularly in situations of financial distress. In 2013, the party chairman of 50Plus, Henk Krol, was forced to resign after an investigation by de Volkskrant revealed that, while acting as a director of GayKrant, he had used pension contributions withheld from employees years earlier to plug financial gaps in the company’s operations. There are also well-known international scandals involving directors who caused large pension deficits. Perhaps the largest and best-known case is that of Robert Maxwell, father of Ghislaine Maxwell, who embezzled approximately GBP 460 million from the pension fund of one of his companies, Mirror Group, in the 1990s.

Second Anti-Abuse Act (Tweede anti-misbruikwet)

To prevent pension deficits for individual employees, Dutch legislators introduced a scheme in 1986 under which directors can be held personally liable if a legal entity fails to pay pension contributions for its employees (on time). The rationale behind the personal liability of directors is both general prevention and recovery in case of non-payment. The scheme only applies to pension funds in which participation is required by law, the so-called industry-wide pension funds. Evidensia is affiliated with such a mandatory pension fund.

Strict liability regime

The legal regime is very strict for directors. The law stipulates that a legal entity is required to notify the pension fund immediately if it becomes apparent that the entity is unable to pay pension contributions, and must also explain the reason for non-payment. If the legal entity fails to make such a notification, each individual director is in principle personally liable. In that case, a director can only avoid personal liability if they can demonstrate that it is not their fault that (i) the notification was not made on time and (ii) the pension contributions were not paid.

If a notification is made in a timely and proper manner, the director is only liable if it is plausible that the non-payment of the contribution is the result of manifestly improper management attributable to the director in the three-year period preceding the time of notification. The Supreme Court ruled very recently that this system is not in conflict with the principle of proportionality.

Writ of execution

Legislators have also provided pension funds with an effective instrument to actually recover outstanding pension contributions from directors. If the legal entity does not settle the pension deficit within 30 days after being requested to do so, the pension fund can demand the outstanding amount, including fines and interest, by means of a writ of execution. With such a writ of execution, the pension fund can, after a short period in which objections can be made, seize the director’s personal bank accounts, private car and home.

Notification obligation

From the foregoing, it is clear that legislators have placed particular emphasis on the notification obligation. This is because non-payment of pension contributions usually occurs in situations of financial distress. The company’s limited liquid assets are then often used to pay creditors other than the pension fund. With the notification obligation, the pension fund hopes to become aware of any financial problems at an early stage, allowing it to safeguard its position (for example, by issuing a writ of execution; see above).

Inability to pay?

However, the newspaper article shows that Evidensia was not in any way unable to pay. On the contrary, business actually seemed to be going well for Evidensia based on the (considerable) profit figures. The directors could therefore argue that the notification obligation (and therefore the strict liability regime) does not apply, because Evidensia was in fact able to pay the pension contributions. This naturally raises the question of why the contributions were not paid.

Reason for non-payment?

The article provides little clarity on this issue. The pension fund states that it is still in discussions with Evidensia and does not wish to share details publicly at this stage. Evidensia itself declines to comment. This raises questions. After all, pension contributions must be paid every month as ’usual’ in accordance with the law. The newspaper article reveals that Evidensia failed to pay any contributions for hundreds of employees over a six-month period. Why did that happen if there were sufficient liquid assets available? A board of directors can be expected to know how much money should be withheld and paid out each month, not least because of their obligation to maintain proper accounts. Moreover, Evidensia had been repeatedly summoned by the pension fund to pay the contributions, so Evidensia was fully aware of its payment obligation.

Liability based on tort

The article paints a picture of a private equity firm that deliberately withholds pension contributions and other employee benefits. If this is indeed the case, then the pension fund may—legally speaking—have additional grounds for holding the directors liable. Based on established case law, a director can be held liable if they have caused or allowed the company to fail to fulfil its legal or contractual obligations. This requires a sufficiently serious personal allegation against the director concerned. If it turns out that the directors involved deliberately failed to pay pension contributions for six months, there may be grounds for the above. However, if Evidensia ultimately pays the outstanding pension contributions, there will be no damage and therefore no reason for personal liability.

What next?

The pension fund has stated that it intends to reach an agreement with Evidensia and will ensure that Evidensia pays the contributions for the employees’ pensions. It therefore appears that Evidensia may eventually pay the contributions in the short term after all. If Evidensia fails to do so, the pension fund may take legal action against the directors. Such proceedings would likely compel the directors to make payment.