Liability of the director and major shareholder (DGA)

Insights

June 15, 2020

Liability of the director and major shareholder (DGA)

As the DGA (director and major shareholder) of a BV (limited private company), it’s generally the BV that will be liable for the commitments and debts it enters into. However, under certain circumstances the DGA can be held personally liable. This often happens in case of improper management.

Directors’ liability

Directors of a BV, including the DGA, are, in principle, not liable for the debts of the BV. However, they will sometimes be held liable by creditors or, in case the BV is already bankrupt, by the trustee.

Improper management occurs when a DGA has performed certain acts that affect the continued existence of the BV in a negative way. It’s the reason you should always act as a good manager. A number or examples of improper management are:

Entering into contracts of which you know, or should’ve known, that the BV cannot comply with.
Not keeping the data of the BV up-to-date in the KvK (Chamber of Commerce) register.
Failing to deposit the annual accounts of the BV at the KvK on time.
Sloppy bookkeeping.

Dividend payments

Often, the DGA is also the director of a BV, which is basically a strange construction. The aim of a director is to protect the interests of the BV, while the main objective of a DGA is to achieve returns from shareholding. These returns will often come from paying out dividends.

And paying out dividends is precisely where the danger lies in regard to the liability of the director. The board must approve the pay-out of dividends. If, in retrospect, the pay-out of dividends has led to problems paying creditors, this can result in private liability.

In order to prevent such situations, the distribution test must be met before paying out dividends. This test will show whether a BV can still meet its obligations after the pay-out of dividends. Always make sure that the execution of this test is documented properly.

Inability to pay

If a BV is temporarily unable to meet its payment obligations to the Dutch Tax and Customs Administration, this needs to be reported to the tax authorities as soon as possible. In this case, within 2 weeks after the assessment should’ve been paid.

In general, you’re not liable if you comply with this. But of course, there’s an exception. If the Dutch Tax and Customs Administration can demonstrate that the inability to meet the payment obligation is a result of improper management in the past 3 years, you’re still liable.

Directors and officers liability insurance

As you can probably deduct from everything mentioned above, quite a few situations can arise in which you, as the DGA of a BV, will be liable for debts. It’s therefore recommended to take out a directors and officers (D&O) liability insurance.