Are you personally liable as a director?

Fortunately, my private finances are safe if my company goes bankrupt! That is what many entrepreneurs think. But unfortunately, this is not the case. The trustee in bankruptcy can personally force you to pay the bills of your creditors. And that can get pretty expensive. In this blog you can read when you are at risk and what you can do about it.

When are you personally liable?

Fortunately, as a director you are not just personally liable for debts. It has to be objectively verifiable, which means that it was clear to everyone that you had acted recklessly. For example, because you entered into a transaction that you actually knew your company could not bear financially. Other examples of reckless behaviour include:

• Fraud
• Deliberately not taking out essential insurance policies
• Shutting down operations without a valid reason
• Taking financial risks

Be open and transparent

Of course, most managers will take their job seriously and do everything they can to keep their company from going bankrupt. But sometimes, like in these coronation times, there is nothing you can do about the fact that business is down. It is important, however, that your administration, insurances and bookkeeping are in order. For example, always ensure that the annual accounts are filed on time. If you fail to do so and your BV goes bankrupt, the law speaks of improper management.

Prevent problems

When entering into an assignment, check that the client is creditworthy. Also, never simply lend money from your company to someone who needs help (for example, a family member). Because loans or unpaid bills can lead to bankruptcy. The trustee will certainly hold you personally liable for this. Because as a director, you should have known that these are forms of financial risk.

Multiple drivers

If you are multiple directors, each director is jointly and severally liable. In that case, you can also be held responsible for a decision in which you were not even involved. You must then be able to prove to the trustee that the mismanagement was not your fault and that you did everything possible to avoid bankruptcy. An almost impossible task!

Directors' Liability Insurance

Therefore, being a good director cannot always prevent directors' liability. Fortunately, however, you can insure yourself for this. Take out a good directors' and officers' liability insurance. This provides protection against claims and usually also covers legal costs. A directors' and officers' liability insurance ensures that your private assets will not be affected by claims for damages resulting from decisions you made as director of your organisation.

Business insurance specialist Cheapp

We at Alpina prove that business insurance doesn't have to be expensive. You can take out directors' liability insurance with us from as little as €10 per month. Arrange it today via www.alpina.nl. And do you prefer personal contact? That is also possible. We can be reached during office hours at 088-688 3712. Then ask us about all our other business insurances. Because we are here to help your business.