Bill for the prohibition under civil law of directors from serving as a director
On September 1, 2014, the Minister of Security and Justice submitted a bill entitled "Bill for the prohibition under civil law of directors from serving as a director" (the "Bill") to the Lower House of the Dutch Parliament. The Bill would require an adjustment of the Dutch Bankruptcy Act and, according to the Minister of Security and Justice, would make combating bankruptcy fraud and obvious irregularities in or around bankruptcy more effective. The Bill would make it possible for a judge, at the request of the public prosecutor or upon application by a trustee in bankruptcy, to order the prohibition of current and former directors or de facto policymakers of bankrupted legal entities from serving as a director upon proof of certain fraudulent or dishonest actions of such persons, based on the idea of preventing the directors in question from pursuing or continuing their activities unhindered. For purposes of the Bill, executive directors in a legal entity with a one-tier board and day-to-day managers are equated to "directors". Therefore a request for the prohibition does not apply to supervisory or non-executive directors. If a legal entity acts as the director of another legal entity, the prohibition may be imposed on the directors of that legal entity.
A prohibition may only be imposed on current and former directors or de facto policymakers of a legal entity during or in the three years prior to the declaration of insolvency of that legal entity if:
- they were held liable in a final judgment on the basis of article 2:138/248 of the Dutch Civil Code for the negative balance of the legal entity in question;
- they consciously performed, permitted or enabled legal acts on behalf of the bankrupt legal entity, which acts were declared void in a final judgment on the basis of article 42 or 47 of the Dutch Bankruptcy Act;
- they seriously failed to comply with their duties of disclosure or their obligations to cooperate in respect of the trustee in bankruptcy, in spite of a request by the trustee in bankruptcy;
- they were involved in a bankruptcy at least twice before, either as former directors or de facto policymakers of a legal entity or as natural persons acting in the exercise of a profession or the operation of a business, and if they personally are to blame for that; or
- either in their capacity as former directors or de facto policymakers of a legal entity, or bankrupt legal entity, has been fined because of an offence as referred to in the articles 67d, 67e or 67f of the Dutch State Taxes Act.
Under the circumstances mentioned above, a judge may but is not obliged to order the prohibition and may also limit the scope and term. The consequence of a final judgment in which the prohibition is ordered is that the person or legal entity concerned is not allowed to be director, supervisory director or de facto policymaker of a Dutch legal entity for a maximum of five years. This means that the person concerned would no longer be legally allowed to function as a director in the bankrupt entity. Also, the concerned person's positions as director or supervisory director in other entities would be terminated. An appointment in conflict with the prohibition would be void. To ensure effective enforcement of the prohibition, the court clerk is to file the final decision regarding the prohibition expeditiously with the Dutch Chamber of Commerce, which will register the resignation of a director for the duration of the prohibition in the Dutch Commercial Register. To this extent the prohibition meets the need in society for dealing more vigorously with habitual bankruptcy fraudsters and money mules.Back to overview
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