If you run your business as a sole trader, you are liable with your entire assets for any unpaid business debts. If you run the business on behalf of a private limited company (BV), the BV is liable for the business debts. Only if you have mismanaged the BV can you, as director be held liable for the company’s debts. In that case, you will still be liable for the business debts with your personal assets.
(Intermediate) holding company as a director
You can try to limit the risk of directors’ liability. To do so, you appoint another private limited company as director of the private limited company through which your business is operated (your operating company). That director could, for example, be your personal holding company. Alternatively, you could add an extra layer by using an intermediate holding company in which you hold virtually no assets.
Please note: it is not sufficient for the personal holding company or the intermediate holding company simply to own the shares (as a shareholder). These private limited companies must be appointed as directors. The personal holding company must be a director of the operating company, or a director of the intermediate holding company, which in turn is a director of the operating company. A shareholder After all, the company can never go bust for more than the capital paid up into the private limited company.
It's too good to be true!
Of course, this is too good to be true. Article 11 of Book 2 of the Civil Code prevents a natural person from hiding behind a private limited company. This section of the Act stipulates that the liability which a director owes to a legal person also jointly and severally lies with the director of that legal entity. The legal term ‘joint and several’ means that, as a director of your personal holding company, you are fully liable alongside the holding company if a claim for directors’ liability is successfully brought against the personal holding company.
In the case of a tort as well
The Supreme Court has recently confirmed that this also applies to liability arising from a tort. This concerns an operating company that was managed by a holding company. The directors of this holding company were two brothers.
The operating company went into liquidation. A supplier of the liquidated operating company succeeded in obtaining a judgement ordering the operating company to pay damages for a tortious act. This was because the operating company had systematically provided this supplier with incorrect information. The holding company, as the director of the operating company, was held liable for this compensation.
The Supreme Court has confirmed that the directors of the holding company are jointly and severally liable for the aforementioned claim, alongside the holding company itself. This means that the directors of the holding company are liable with their entire personal assets for the damages owed by the insolvent operating company. The brothers may, however, still be able to avoid this joint and several liability by proving that they cannot be held personally responsible to any significant extent.
Not up for it?
Doesn’t a personal holding company (and an intermediate holding company) serve any purpose? Of course it does. However, such a corporate structure does not relieve you, as a director and major shareholder, of your duty to act at all times as a prudent director. You fulfil this duty by carefully substantiating and documenting your decisions. By seeking expert advice on matters outside your area of expertise. And by keeping the financial relationships between the companies as transparent as possible. Read our 5 tips!