In our newsletter of June 2015, we updated you on recent developments with respect to Dutch partnerships. In particular, we commented on two recent judgments of the Dutch Supreme Court. Click here for our June 2015 newsletter.
Shortly after the finalization of our June newsletter, the Dutch Supreme Court delivered another judgment in the matter of limited partnerships, in particular with respect to the liability of a limited partner performing acts of management (beheershandelingen) on behalf of the limited partnership.
Pursuant to Dutch law, a limited partnership (commanditaire vennootschap, or CV) has two types of partners: one or more general partners (beherend vennoten) and one or more limited partners (commanditaire vennoten). Limited partners are not permitted to perform acts of management on behalf of the CV. In principle, a limited partner is only liable up to the amount of their contribution to the CV. A limited partner acting contrary to the statutory ban on performing acts of management, however, is jointly and severally liable for the debts and other obligations of the CV, in the same manner as general partners.
Until very recently, Dutch case law was very strict in applying the prohibition on performing acts of management. Performing only one act of management on behalf of the CV could lead to full liability for all debts and obligations of the CV, regardless of whether or not the other party was aware of the fact that it was dealing with a limited partner (Supreme Court, 15 January 1943, NJ 1943/201 - Walvius).
Supreme Court, 29 May 2015, ECLI:NL:HR:2015:1413
The Supreme Court has now receded from its established case law. Performing one act of management on behalf of the CV will no longer automatically lead to full liability for all debts and obligations of the CV.
In the present case, the limited partners co-signed two contracts (with the same counterparty). Subsequently, the business was sold to a third party. As part of the transaction, it was agreed that the CV would remain liable for due but unpaid remunerations for employees.
At a later date, the purchaser paid a certain amount to one of the employees and subsequently claimed compensation for an equal amount to be paid by the limited partners of the CV. The purchaser claimed that the limited partners performed two acts of management (by co-signing the two contracts mentioned above) and therefore were liable for all of the debts of the CV. The district court and court of appeal agreed with the purchaser. The fact that the counterparty of the CV to the aforementioned two contracts supposedly knew that the limited partners co-signed these contracts in that capacity was deemed irrelevant.
The Supreme Court has now reversed the court of appeal judgment. The prohibition against limited partners performing acts of management was primarily introduced to protect third parties (general partners are jointly and severally liable for the debts of the CV, whereas limited partners are – in principle – not). The far-reaching consequences of full several and joint liability for limited partners must be justified given the circumstances in the case at hand. In this, according to the Supreme Court, the fact that third parties (in this case, the counterparty to the two contracts) are aware – or should have been aware – of the limited partner’s position in the partnership could indeed be a relevant factor.
If the counterparty does know of the role of a limited partner co-signing a contract, there is no need to further protect such a counterparty. Hence, the joint and several liability for a limited partner may then not be applicable.