Director liable for multi-million deficit: passively continuing a loss-making group structure constitutes manifestly improper management

Passively watching losses mount: a costly mistake

A director who year after year watches a company make losses, creditors go unpaid and equity evaporate — without intervening — runs a real risk of being held personally liable for the entire deficit in bankruptcy. That is the stark message from the Zeeland-West-Brabant District Court in its judgment of 14 May 2025.

The court held the directors of a bankrupt private limited company jointly and severally liable for the bankruptcy deficit on grounds of manifestly improper management (Article 2:248 DCC). An advance payment of no less than €2,000,000 was immediately awarded, while the ultimate deficit is expected to run into the millions.

What happened?

In 2016, a new company — let us call it the 'Bankrupt BV' — was incorporated within a group to continue the activities of a subsidiary that had just gone bankrupt. The Bankrupt BV manufactured valves for the oil and gas industry and supplied them almost exclusively to one group sister company.

The group structure was problematic from the outset:

• The Bankrupt BV had no external customers and no external financing.
• It was entirely dependent on intra-group advances and internal current account relationships.
• Transfer pricing arrangements within the group meant the Bankrupt BV never achieved a realistic profit margin.
• From its incorporation in 2016/2017, it made significant losses every year: equity fell from -/- €1.4 million in 2017 to -/- €11.2 million in 2023.

When the group financing was stopped, bankruptcy was inevitable. The company was declared bankrupt and the trustee initiated proceedings for manifestly improper management.

The trustee's claims

The trustee attacked on three fronts:

1. Manifestly improper management (Article 2:248 DCC) The directors had for years maintained a loss-making structure in which the Bankrupt BV functioned in practice as a 'loss-absorbing entity': creditors (including the tax authorities, landlord and employees) bore the risks, while profits ended up with other group companies.

2. Director liability (Article 2:9 DCC) and tort (Article 6:162 DCC) The directors had seriously neglected their duties by failing to take measures to protect creditors.

3. Fraudulent preference (Article 42 Insolvency Act) In the run-up to bankruptcy, the last assets of the Bankrupt BV — machines and inventory — were transferred to a sister company without actual payment of the purchase price. Instead, settlement was made only through current account entries.

The directors' defence

The directors advanced a range of defences:

• The losses were caused by external factors: the COVID-19 pandemic, the Suez Canal crisis and the energy crisis.
• The risky group structure had been set up in 2016/2017 and therefore fell outside the three-year period of Article 2:248(6) DCC.
• Annual discharge resolutions would have released the directors from liability.
• The transfer of assets had not harmed the company's financial position, because the purchase price was settled through current account entries.
• The directors had done their utmost best: committed their own resources, made arrangements with the tax authorities.

None of these defences succeeded.

The court's judgment

The three-year period

The most creative defence was that the structure had been set up before the three-year period and therefore fell outside the scope of Article 2:248 DCC. The court rejected this: what matters is not when the structure was established, but the active continuation of it. The directors had year after year consciously chosen to continue the loss-making activities, knowing the risks this entailed for creditors. That ongoing choice fell squarely within the three-year period.

Discharge does not protect against Article 2:248 DCC claims

The fact that shareholders had granted annual discharge was of no avail to the directors. Article 2:248(6) DCC expressly provides that discharge does not discharge liability for manifestly improper management. Discharge operates only in the internal relationship between directors and the company; the trustee cannot be bound by it.

Fraudulent preference

The transfer of machines and inventory to the sister company — settled through current account entries rather than actual payment — was a fraudulent preference. The court confirmed that the set-off harmed creditors: the current account receivable that replaced the assets was worthless. The trustee had rightly avoided these transactions under Article 42 of the Insolvency Act.

Manifestly improper management: group interests placed above company interests

The core of the judgment: the directors had sacrificed the interests of the Bankrupt BV for the interests of the group. The company functioned in practice as a loss-absorber for the rest of the group, while its creditors bore the consequences. That is not entrepreneurship — it is manifestly improper management.

The external factors (COVID, Suez, energy) were taken into account, but the court held that it was manifestly improper management — not external circumstances — that was the primary cause of the bankruptcy.

The Comsys line extended

The court consciously followed the line from the Comsys ruling (ECLI:NL:HR:2009:BH4033), in which the Supreme Court held a parent company liable for its subsidiary's debts in tort. The structure was comparable: a subsidiary carrying out only loss-making activities, entirely dependent on the group, with creditors left unprotected.

Where Comsys based liability on Article 6:162 DCC (tort), the Zeeland-West-Brabant court extends that line to Article 2:248 DCC — the insolvency-specific director liability provision. That is a significant extension: Article 2:248 DCC leads to joint and several liability for the entire bankruptcy deficit.

What does this mean for you as a business owner or director?

If you are a director of a company within a group:

• Are you a director of a company that structurally makes losses and is entirely dependent on group financing? You run a real risk of personal liability if your company goes bankrupt.
• It is irrelevant whether you set up the group structure yourself. If you consciously continue it while creditors remain unprotected, you may be held liable.
• Discharge by the general meeting does not protect you against a trustee's claim under Article 2:248 DCC.
• Take action: ensure a realistic business plan, protect creditors, and consider timely application for suspension of payments or bankruptcy if continuation is not responsible.

If your company deals with a group entity that is structurally loss-making:

• Be alert: if your counterparty is a 'loss-absorbing entity' that survives only on group money, the chances are high that you will be left with an unrecoverable claim in bankruptcy.
• Consider requiring additional security (guarantees, sureties, pledges) before doing business.

When transferring assets within a group:

• Be extremely careful about transferring assets from a distressed company to other group companies, even if the purchase price is settled through current account entries. The trustee can have such transactions set aside as fraudulent preferences.
• Ensure realistic valuation and actual payment — not merely set-off.

Conclusion

This ruling is a powerful warning to directors within group structures: passivity is no excuse. Anyone who year after year watches a company make losses, creditors go unpaid and equity evaporate — without taking action — risks personal liability for the full bankruptcy deficit. That can, as this case illustrates, amount to millions of euros.

The message is clear: as a director, you bear an active responsibility for the interests of the company and its creditors — even if the structure was imposed on you by others.

Ruling

This blog post is based on ECLI:NL:RBZWB:2025:5501, judgment of the Zeeland-West-Brabant District Court of 14 May 2025.