Mismanagement and directors liability

Do you, as a shareholder, director or board member of a company, disagree with the policy being pursued? Or has the tone hardened during discussions and do you no longer feel comfortable with the state of affairs within the company? Then proceedings before the Enterprise Chamber of the Amsterdam Court of Appeals may offer a solution. This court is authorized to take measures aimed at restoring the balance within the company. In this way deadlock situations within a BV, an NV, a cooperative, an association or a mutual insurance company can be effectively broken.

The Enterprise Chamber

At your request the Enterprise Chamber can order an investigation into the policy and course of affairs within the company. Such an investigations is also referred to as an ‘inquiry’. Investigators appointed by the Enterprise Chamber can conduct a thorough investigation into the affairs of the company and have far-reaching powers to do so. For example, they are given access to the business premises and the complete administration of the company. During the investigation the investigators must be able to work independently and impartially.

Emergency measures

Pending the investigation, the Enterprise Chamber can take emergency measures to break any deadlock within the company. These include the suspension (or even dismissal) of obstructive directors or supervisory directors, but also the temporary appointment of new directors or supervisory directors. In addition, shareholders may be deprived of their voting rights or their shares may even be involuntarily transferred to a third party. These emergency measures (known as ‘immediate provisions’) are temporary in nature on paper (because they will apply as long as the investigation is in progress), but can have far-reaching consequences in the meantime.

The establishment of mismanagement and directors liability

The investigators conclude their investigation with a report. On the basis of this report, you, as a shareholder, board member or supervisory director, can request the Enterprise Chamber to establish that there has been mismanagement. If the Enterprise Chamber reaches such a conclusion on the basis of the inquiry report, it may impose the consequence that corporate decisions which contributed to the mismanagement be annulled. Such annulment has retroactive effect. In extreme cases, the company may even be dissolved by order of the Enterprise Chamber.

The Enterprise Chamber’s judgment

The Enterprise Chamber’s finding of mismanagement thus provides a basis for measures that are very drastic for the company and the officers involved. While some may regard these measures as satisfactory, as a director you may experience them as unjust and unjustified. If, as a director, you have contributed to a policy that the Enterprise Chamber has found to be mismanagement, this does not automatically mean that you are also liable for the associated damage. The fact that you may have been ordered to pay the costs of the proceedings before the Enterprise Chamber does not change this. However, the mismanagement that has been established can be a stepping stone to separate liability proceedings against you as director. Also, the mismanagement established is sometimes used to force you as director to pay damages, even before a separate liability procedure is initiated.

Contact VIOTTA

Are you faced or at risk of being faced with the Enterprise Chamber’s finding of mismanagement and do you wish to arm yourself against premature liability actions by others within the company? Then let the specialists at VIOTTA Advocaten advise you. Almost every day we assist clients in proceedings before the Enterprise Chamber, but also in subsequent proceedings. We assist individual directors in preventing and conducting proceedings regarding directors liability. Please contact the lawyers of VIOTTA for questions or a free consultation. They will be happy to assist you.