When losses suffered by a creditor were caused by serious personally culpable acts of the debtor's director, that director can be held personally liable for them. It follows from a recent ruling by the East Brabant District Court that this could be the case when the director of a foundation organising a festival failed to take into account a bad weather forecast. The festival fell into the water. The director ended up from the rain in the drizzle.
A statutory director of a legal entity is responsible for fulfilling commitments. A director may also not act unlawfully. With legal persons, the law takes as its starting point that only the legal person is liable for damage resulting from non-compliance with obligations or an unlawful act. Only in exceptional cases can the director be held personally liable. In short, this requires serious personal culpability, which means, for example, that the director knew or should have known that the company would not be able to fulfil its obligations and would have no recourse.
To assess whether there is a serious personal culpability, the 'Beklamel criterion' is considered, among other things. In essence, this criterion implies that the director knew or should have understood when entering into the commitment that an injured party such as a creditor of the company would suffer damage as a result of the director's actions. This liability criterion is regularly the subject of litigation.
In short, yes. In a recent judgment of the East Brabant District Court, this 'Beklamel' rule was again the subject of proceedings. In this case, a director entered into commitments on behalf of the foundation (legal entity) with another party, while, according to the court, he should reasonably have known that the foundation would not be able to fulfil its payment obligations. This was because the foundation was organising a one-off festival and depended mainly on income from the sale of tokens at the festival to meet its obligations to creditors. However, the weather forecast was poor. According to the court, the director should have realised that attendance would be low and therefore fewer tokens would be sold than budgeted, resulting in the festival closing at a loss. Despite this, the director had agreed to do extra work just before the festival started. According to the court, the director thereby entered into a commitment when he should have known that the company would not be able to fulfil it. Revenues fell short and the court ruled that the director was personally liable for the losses incurred.
The ruling sets one thinking. After all, nothing is as changeable as the weather. And in retrospect, it is easier to rule that it is obvious that fewer visitors will come when the weather is bad; after all, it has demonstrably happened by then. However, the director had to make this consideration beforehand.
It must be prevented that directors no longer dare to take risks for fear of possible personal liability. In contrast, the risk taken by the director in this case was the risk taken by acting on a budget that relied heavily on the number of visitors and the expenses of those visitors. The court evidently does not consider this to be normal entrepreneurial risk anymore, the liability for which legally lies with the company.
This judgment shows that it is important for directors to be aware of their responsibility and to act carefully when entering into commitments. And nowadays, this apparently includes the weather forecast.
Are you in doubt about your actions as a director, or have you been duped by the actions of another party? Then feel free to contact one of our Team M&A specialists. We will be happy to provide you with advice.