One of the duties of the trustee in bankruptcy is conducting the so-called regularity investigation. In the framework of this investigation, the trustee in bankruptcy verifies, among other things, whether there have been fraudulent (prejudicing) transactions before the bankruptcy. The trustee in bankruptcy always investigates whether directors’ and officers’ liability exists.
Book 2, article 248 of the Dutch Civil Code (DCC) stipulates that the trustee in bankruptcy can hold the board liable for payment of all debts of the company if there has been manifestly improper management (read: mismanagement) and if has become plausible that this has caused the bankruptcy.
The law gives the trustee in bankruptcy an important advantage if the board has made a mess of the records or has failed to file the annual report and accounts in time: in that case, it is an established fact that there has been mismanagement, and the director’s lawyer has to demonstrate plausibly that this did not cause the bankruptcy. In practice, it quite often occurs that directors are held accountable by trustees in bankruptcy if the administration obligation or the publication obligation has not been complied with. Sometimes, this even happens while it is not plausible at all that the bankruptcy was caused by this. It is therefore important for the board to ensure that the annual report and accounts are correct and are filed in time, and that proper records are kept.
The director of a private limited company (Dutch BV) and of other legal entities is obliged to keep proper records. This is called the administration obligation. The administration has to be set up in such a way as to enable the board to readily gain an insight into the rights and obligations of the company. The law gives no exact directions on the way in which records should be kept. This may depend on, among other things, the nature and the size of the company and the interests of the parties involved. The level of precision expected from a bank will be higher than that of a simple enterprise such as a sandwich bar. It is in any case advisable to store all contracts and invoices in an accessible manner and to ensure that all payments are quickly processed in an accounting system.
The law stipulates that (the board of) the legal entity must have published its annual accounts no later than thirteen months after the end of the financial year. A private limited company (Dutch BV) has to prepare the annual accounts every year – in principle no later than five months after the end of the financial year. It goes without saying that these annual accounts must give a true picture of the financial position of the company. In many cases, it is sufficient for smaller and middle-sized enterprises to publish an abridged balance sheet and profit and loss account.
As lawyers of directors, but also in the role of trustee in bankruptcy, the insolvency lawyers of AMS law firm have extensive experience of directors’ and officers’ liability. Their practical experience as trustee in bankruptcy is also very valuable when it comes to assessing the litigation risks. Our lawyers can also assist you in proceedings against the trustee in bankruptcy.