Amsterdam Court of Appeal on liability of trust directors

Trust directors not treated differently from regular directors

The board of directors of an NV or BV may contractually agree to a limitation of its powers to manage the company. Such arrangements are typical for trust offices engaged by a foreign ultimate beneficiary to render services to ‘his’ company, i.e. the client of a trust office.

In principle, any contract a board of directors enters into binds the board and thereby limits its power. However, notwithstanding such a contract, it is still the board of directors that is in charge of managing the affairs of the company.

A distinction should be made, therefore, between making a decision, i.e. the formal process in accordance with the law and the articles of association, and initiating a decision or policy, i.e. the person or persons with the ultimate power to determine the policy of the group of companies. In other words: trust directors are not the actual policymakers within the company; they review whether the policy adopted by the beneficiary (or a group company) which the trust directors are supposed to carry out, does not conflict with the company’s articles or its general interest.

On 21 July 2009, the Amsterdam Court of Appeal (LJN: BK1100) ruled that in terms of directors’ liability for tax debts there is no difference between ‘regular’ and trust directors of a Dutch NV or BV. In other words: there applies no ‘lighter’ liability regime to trust directors.

Although the Dutch corporate code does not distinguish between trust directors and ‘material’ directors in terms of powers, responsibilities and liability, it is generally held by practitioners such as myself, and also confirmed in legal writings by authoritative writers, that there is a difference between trust directors and ‘material’ directors. In other words, the trust director performs the tasks attributed to him by the Dutch Corporate Code, which are similar to the tasks of a ‘material’ or ‘ordinary’ director. However, the trust director has considerably less autonomy and in performing his tasks he largely depends on more or less specific instructions from (or on behalf of) the ultimate beneficiary and/or another (foreign) group company. Trust directors do not make strategic decisions on their own; they do not determine the future of the object company on their own; they are not independent in their policy-making.

Based on this I am of the opinion that the fact that a trust director is instructed by an ultimate beneficial owner (or foreign group company), should have an effect upon the application of the general liability of directors. Only time can tell if the Dutch Supreme Court in The Hague will be given the opportunity to settle this issue for once and for all.

Karel Frielink

(Karel's Legal Blog)

29 October 2009

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