The bill on director disqualification has been adopted by both houses of the Dutch parliament. The date on which the new act is to enter into force has not been announced yet. The bill, amending the Dutch Bankruptcy Act, introduces the possibility of disqualifying a director under civil law who engages in bankruptcy fraud or has committed mismanagement during the period leading up to a bankruptcy. The disqualified director may no longer manage a Dutch legal entity or be associated as a supervisory director for a maximum period of five years. Furthermore, a director’s disqualification which has been declared irrevocable is registered on a public list kept by the Chamber of Commerce. The bill is part of the Dutch insolvency legislation review programme and aims to combat bankruptcy fraud. It will apply to bankruptcies declared after the bill enters into force. It is to be expected that civil director disqualification can address bankruptcy fraud more effectively, as fraudulent directors will no longer be allowed to manage a legal entity.

Director disqualification

Under the new law, a director of a Dutch legal entity can be disqualified in five situations that occur during a bankruptcy or during a three-year period before bankruptcy. One of these situations is when the director’s liability has been irrevocably established on the basis of Dutch Civil Code provisions dealing with mismanagement to the bankruptcy. Other situations are that fraudulent preference has taken place causing considerable injury to creditors; that certain tax offences have been committed; or that there was a serious failure to meet duties of cooperation and information towards the bankruptcy trustee. A last ground for disqualification is that repeated bankruptcies have taken place within a short period in which the director has been involved. The bankruptcy trustee or the public prosecutor can request a director’s disqualification. Former directors, actual policy makers and executive directors in a one-tier board also fall within the scope of the new provisions. A disqualification order cannot be issued against a supervisory director or non-executive director of a one-tier board. During the parliamentary debate the Minister of Security and Justice gave as a reason that (i) a supervisory director is further removed from the company, and (ii) legal entities without a supervisory board are often involved in cases of bankruptcy and fraud. The government made a commitment to review the bill after five years and will then examine the possibility of disqualifying supervisory directors in cases of mismanagement.

Consequences

A director who has been disqualified cannot be appointed as a managing director or as a supervisory director of a Dutch legal entity for a set period not exceeding five years, unless the district court stipulates otherwise. Any appointment during that period will be void. A director’s disqualification will be registered on a pubic list kept by the Chamber of Commerce. The disqualified director will be taken off the Trade Register. If a legal entity no longer has managing or supervisory directors as a result of a director’s disqualification, the court may temporarily appoint one or more managing or supervisory directors.