IMPACT OF LIABILITY TO THE DIRECTOR OF THE DIRECTOR

Curaçao law cannot ‘break through’ to a legal relationship governed by foreign law

Under Section 2:17 subsection 1 of the Curaçao Civil Code, the liability of a legal entity as a managing director of another legal entity (the direct or 1st degree director) also rests jointly and severally on each person who at the time this liability arose for the legal entity was its managing director (the indirect or 2nd degree director). It applies to this indirect managing director as it applies to the direct managing director that he will not be liable if he can prove that he cannot be blamed for the improper performance of duties, also considering his sphere of action and the period during which he had been in office, and that he has not been negligent in taking measures to avoid the consequences of this.

The idea behind this legal provision is that in the event of a director’s liability it should always be possible in the end to hold one or more natural persons liable.

The Dutch Civil Code has a comparable provision, namely in Section 2:11 Dutch Civil Code. Discussions arose in Dutch literature about the scope of that provision. The discussion focused for instance on the question of whether in a situation in which a Dutch legal entity has a foreign legal entity as a managing director, the natural person who is the managing director of that foreign legal entity will be liable if according to Dutch law that foreign corporate managing director is liable on account of director’s liability.

In the case of My Guide (Nederland) BV, the Hoge Raad (Dutch Supreme Court) 21 June 2013, JOR 2013, 238, expressed an opinion on this topic. This case involved the question of the liability of a managing director (a Dutch person domiciled in Monaco) of a Swiss company (My Guide Holding GmbH) which was the corporate managing director of the bankrupt Dutch company My Guide (Nederland) BV.

Dutch individual
(residing in Monaco)
|
(managing director of:)
|
My Guide Holding GmbH
(Switzerland)
|
(managing director of:)
|
My Guide (Nederland) BV
(The Netherlands)

The Supreme Court held:

3.3 In its decision of 18 March 2011, LJN BP1408, NJ 2011/132, the Supreme Court gave a decision in a case relating to the liability of a foreign legal entity (D Group) in its capacity as director of the Dutch company D Freight, which in its turn was the director of several bankrupt Dutch private companies with limited liability. In this it was considered for instance (ground for decision 4.1.3):

‘Pursuant to the provisions in Section 3, opening sentence and under e, of the Dutch Corporations (Conflict of Law) Act [Wet conflictenrecht corporaties] the law applicable to corporations governs for instance the question of who, apart from the corporation, is liable on account of a certain capacity such as that of a director. This entails that Dutch law as the incorporation law of D Freight also governs the liability of D Group as the director of this company and that Section 2:11 of the Dutch Civil Code is applicable to this corporate relationship. This will not affect – as considered correctly by the appeal court in ground for decision 11.7.5 – that the corporate relationships between D Group and its director(s) are governed by Belgian law as the incorporation law of D Group.’

3.4 Section 2:11 of the Dutch Civil Code provides that the liability of a legal entity as a director of another legal entity also rests jointly and severally on each person who, at the time this liability of the legal entity arose, was a director of it. Therefore this regulation provides for direct directors of the liable legal entity. If the director liable under Section 2:11 of the Dutch Civil Code, is in its turn also a legal entity, the latter’s directors can then also be held liable pursuant to Section 2:11 of the Civil Code. The question of whether this rule of Dutch law of legal entities can be applied in a case where foreign legal entities are involved, must be answered on the basis of Dutch international private law.

As considered in the said ruling of 2011, the question of who, on account of a certain capacity, such as that of a director of a corporation, apart from the corporation itself, will be liable is, according to Dutch international private law, governed by the law applicable to that corporation (see Section 3, opening sentence and under e of the Dutch Corporations (Conflict of Law) Act applicable at the time and currently Section 10:119, opening sentence and under e of the Dutch Civil Code). It follows from this that a director can only be held liable pursuant to Section 2:11 of the Dutch Civil Code if the liable corporate director managed by him is a Dutch legal entity.

It appears from the 2011 ruling referred to by the Supreme Court that Section 2:11 of the Dutch Civil Code is applicable only to the joint and several liability of a managing director of a Dutch legal entity being a managing director of another Dutch legal entity. The Supreme Court confirmed this doctrine again in clear wording in its decision of 21 June 2013.

This ruling of the Supreme Court confirms the opinion adhered to in Dutch literature that the Dutch law of legal persons cannot ‘break through‘ to a legal relationship governed by foreign law by means of Section 2:11 of the Dutch Civil Code, namely the legal relationship between the foreign legal entity (being a managing director of a Dutch legal entity) and its own managing director. After all, the legal relationship between a foreign legal entity and its managing director is governed by foreign law.

The considerations of the Supreme Court are also very important for Curaçao law because the Curaçao legislation does not differ from the Dutch legislation on this point. It should be assumed that what has been considered by the Supreme Court also applies to the law of Curaçao. So if a natural person is a managing director of a foreign legal entity which is itself a managing director of a Curaçao legal entity, that foreign legal entity can indeed be liable under Curaçao law on account of director’s liability (as the direct managing director), but under Section 2:17 subsection 1 of the Curaçao Civil Code the natural person cannot be held liable. Until now the Supreme Court seems to be reluctant to apply the rules of Dutch law to foreign legal relationships. This applies likewise to the law of Curaçao.

Karel Frielink
(Attorney/Lawyer, Partner)

(1 April 2016)

.

Leave a Reply

You must be logged in to post a comment.