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Directors disqualification under civil law: mission accomplished?

Directors disqualification under civil law: mission accomplished?

We informed you on several occasions of the directors disqualification under civil law on our Knowledge Page. The legislative proposal and the implications, the submission and its handling in the House of Representatives and the Senate as well as the entry into effect thereof have thus already been discussed comprehensively. This article focuses on the effect of the directors disqualification in practice. The effectiveness of this promising instrument in the fight against fraudulent directors is fairly limited as a result of the current legislative elaboration.

Introduction

The reason for introducing the directors disqualification was to counter the social problem of insolvency fraud.[1] The legislator wanted to counter insolvency fraud by making it possible to impose a directors disqualification that can be applied broadly in a relatively simple manner.[2] Imposing such a disqualification has become possible as a result of the insertion of Sections 106a up to and including 106e in the Bankruptcy Act (Fw).

The receiver or the Public Prosecution Service can demand a directors disqualification for a period of at most 5 years on the basis of these articles.[3] The demand can be brought against the director of a bankrupt legal entity governed by private law or by European law. Former directors and actual policymakers also come under the scope of the regulation. If the director of the bankrupt legal entity is a legal entity itself, it is possible to move on to the natural person behind it under Article 2:11 of the Dutch Civil Code.

A directors disqualification that has been imposed applies to current and future board positions. This means that the director is deregistered from the Commercial Register as regards his current positions by the Chamber of Commerce. In addition, it is the aim that the directors disqualification is registered with the Commercial Register so that future board positions cannot be held by the person involved for the duration of the directors disqualification.

To whom does the disqualification not apply?

The directors disqualification is part of the Fw and therefore does not apply to a director of a legal entity that has ceased to exist as a result of expedited liquidation. It is also remarkable that no directors disqualification can be imposed on supervisory directors and non-executive directors unless they qualify as actual policymaker and come under the scope of the rule on that basis. As it is very difficult to demonstrate that someone is actually a policymaker, it is expected that in practice a directors disqualification will be imposed on only a few policymakers who are not formal directors. A disqualification can therefore also be circumvented by merely adopting the position of actual policymaker. Another major problem is that the disqualification does not apply to directors of legal entities under public law (a legal entity with a government task) and church communities. The disqualification also does not prevent persons in respect of whom a disqualification has been pronounced from starting a one-man business or from joining a partnership as a partner.[4]

Interposing a foreign company

The directors disqualification concerns Dutch legal entities under private law. The directors disqualification can therefore be avoided by using a legal entity under foreign law. For example, an English Limited can be registered as director of a Dutch legal entity, while a directors disqualification was imposed on the director of that Limited. The approach to this ‘route’ promised by the European Commission has not yet been provided.[5]

Registration with the Commercial Register

The realisation of the directors disqualification succeeds or fails on the basis of updating a register in which the disqualifications pronounced are included. This makes it possible for a civil-law notary for example to check quickly and easily whether a directors disqualification was imposed on the intended director. The problem is that this register does not yet exist formally.[6] The legislative amendment that should make this possible has been delayed. It is not yet known when the introduction of the register is to be expected.[7]

Bringing the demand

We may assume that the aforementioned register will be introduced in time. It is not surprising in view of the fact that the directors disqualification only concerns acts performed after 1 July 2016 that no disqualification has been imposed so far. As it is the task of the receiver or the Public Prosecution Service to demand a directors disqualification, it is questionable whether many disqualifications will be demanded and imposed in future. The question is whether the Public Prosecution Service will often demand a directors disqualification. Work pressure is a problem for the Public Prosecution Service in this connection. Within the context of his statutory task, a receiver, who acts in the interest of the assets, will often have little interest in a directors disqualification. The reason being that no money flows into the assets as a result of this disqualification. What is more, the work he has to spend on this is actually at the expense of those assets.[8]

Conclusion

The legislator’s intention when it created the directors disqualification under civil law is good: it must be possible to deal with directors who are guilty of insolvency fraud and ban them from board positions. However, current implementation of the directors disqualification leaves much to be desired. It is to be hoped that the evaluation of the regulation leads to an effective approach to the problems that have been identified.

By Bart Jacobs

[1] P.A.M. Verrest & T. Heukels, ‘Nieuwe wetgeving ter bestrijding van faillissementsfraude’, in: AA 2017/51, p. 51.
[2] P.A.M. Verrest & T. Heukels, AA 2017/51, p. 52-53.
[3] The Public Prosecution Service has to demand such a Disqualification, which means that the Public Prosecution Service has to submit an application while a receiver is obliged to apply proceedings commenced by a summons, see: N. Kreileman & C.D.J. Bulten, ‘Het civielrechtelijke bestuursverbod’, in: Ondernemingsrecht 2016/109, par. 7.1.
[4] N. Kreileman & C.D.J. Bulten, Ondernemingsrecht 2016/109, par. 3.1, 4.1-4.2, 6.4.
[5] M. Zilinksy, ‘Civielrechtelijk bestuursverbod en bestuurder van een buitenlandse rechtspersoon’, in: WPNR 2016/7097.
[6] There is already actually a register (http://www.dzw.gr/bc80d), but legally disqualifications cannot yet be included therein.
[7] N. Kreileman & C.D.J. Bulten, Ondernemingsrecht 2016/109, par. 2.3.
[8] R. van Galen, ‘Fraudebestrijding en bestuursverbod’, in: Ondernemingsrecht 2016/116.

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