Risks of Remote Management: Liability in Case of Bankruptcy

In the business world, there are numerous structures possible to facilitate enterprises. However, a recent case before the Overijssel District Court highlights the serious risks of ‘remote governance’, also known as the straw man construct. This type of governance can lead to significant liability for the statutory director. Let’s take a closer look at this case and its legal implications.

The Case

In this matter, a son established a private limited company (B.V.) in December 2021 to assist his father, who was personally bankrupt. The son became the statutory director, but thereafter he had no role in the management; he left the daily operations to his father, who was the de facto director. This father quickly entered into obligations, such as loan agreements, while the B.V. itself generated no activities or income.

Only one and a half years later, on May 16, 2023, this resulted in the bankruptcy of the B.V. The trustee held the son liable based on Article 2:248 paragraph 1 of the Dutch Civil Code for manifestly improper management. The financial damage was assessed at €657,299. An advance of €374,622.95 was awarded by the court.

What is Manifestly Improper Management?

Manifestly improper management means that a director enters into obligations that are evidently impossible to fulfill, given the circumstances. In this case, there were no activities or income to justify the debts of the B.V. This constitutes a clear violation of the duty of care that a director has.

Statutory vs. De Facto Director

In this case, the son was held accountable as the statutory director. It is important to understand that both statutory and de facto directors can be held liable. In this case, the son did not make any effort to guide the B.V., which not only neglected his role as a director but also raised the annoyance that he was never actually involved in the management.

Defense Grounds and Passive Management

According to Article 2:248 paragraph 3 of the Dutch Civil Code, a director is not liable if he can prove that the improper management is not attributable to him and that he has not been negligent. However, in court, the son's defense did not hold up. He had completely ignored his role as a director, did not exercise supervision, and did not take measures, which confirmed his culpability.

Dangerous Illusions of Remote Governance

A common misconception is that merely being listed as a director provides protection. This case demonstrates that good intentions (such as wanting to help a bankrupt father) do not provide legal coverage against liability. The absence of active involvement or oversight can be fatal for the director; the law punishes passive behavior.

What Should a Director Do?

To avoid personal liability, a director must actively engage in the enterprise. This includes:

1. Exercising active oversight of daily operations,
2. Carefully studying and understanding financial reports,
3. Taking measures when indications of financial problems arise,
4. Staying informed about the operational aspects of the B.V. By following these steps, a director can comply with his duty of care and protect himself against unjust claims.

Conclusion

This case emphasizes the importance of active involvement in the governance of an enterprise. A passive role, however well-intended, can lead to serious financial consequences and liability. Entrepreneurs and their advisors should be aware of these risks and take appropriate measures.

Ruling

This blog post is based on ECLI:NL:RBOVE:2025:5628.