Harmonisation of EU Insolvency law:  director’s duties in the event of (imminent) insolvency

Timely filing for bankruptcy

On 07 December 2022, the European Commission published its proposal for a directive to harmonise certain aspects of insolvency law (hereafter referred to as the EU proposal). The EU proposal provides an obligation for directors to file for bankruptcy of the company no later than three months after the directors have become aware, or should reasonably have become aware, that the company is insolvent. If this obligation is not followed, directors risk being held personally liable for damages that result from the deterioration of the recovery value of the legal entity, as compared to the recovery value should the bankruptcy have been filed in a timely manner. 

The proposal constitutes minimum harmonisation rules, EU member states may therefore maintain or introduce stricter obligations as they wish. In addition, member states should determine to whom the obligations of directors apply, taking into account that the concept of ‘director’ should be interpreted broadly to include all persons entrusted with making important decisions, or those who effectively make, or should make, important decisions relating to the management of a legal entity. The European Commission has not provided further interpretation as to when a company is deemed to be insolvent.

Differences compared to Dutch law and the effects of the EU proposal

Under current Dutch law, there is no legal obligation for directors to file for the company's bankruptcy at a given moment or within a certain term. However, directors' personal liability may exist if a company continues to operate for too long. For example, under Dutch law, directors may be held personally liable for damages suffered by creditors if the directors entered into obligations on behalf of the company at that time when they knew or should have known that the company would actually fail to fulfil its obligations and would not provide redress. 

There is, however, much uncertainty in Dutch law as to when the moment of insolvency has arrived. The Dutch Supreme Court has expressed that determining the so-called ‘reference moment’ is to some extent arbitrary, and depends on the relevant facts and circumstances of the given case. 

Once implemented, the consequences of the EU proposal could therefore be extensive, especially considering the personal liability of directors. This proposal will likely be met with some criticism. After all, directors – and attorneys – will need to know clearly when the moment of insolvency has arrived, or when they reasonably should be expected to know this. There could be unnecessary negative consequences should directors cease operations too soon for fear of personal liability. 

The EU proposal is expected to receive a healthy amount of scrutiny and attention in the legal literature. The EU-proposal, once implemented, will result in interesting national and European case law, especially with regard to the moment a company is deemed insolvent.

---

Dominique Beerenfenger is an attorney at TeekensKarstens in the Netherlands specialising in national and international litigation. Dominique also focuses on insolvency law, assisting both trustees and directors in proceedings and the build-up to proceedings.