Directors' liability and the bankruptcy actio pauliana in group companies
Director of valve manufacturer ordered to pay €975,000 after continuing without financing
MVM Schiedam was engaged in the manufacture of valves for the oil and gas industry. The company had made structural losses since its incorporation, had negative cash flow and was entirely dependent on group companies for its financing. At the end of 2016 an API audit was broken off after the director sent the auditor away; in January 2017 the certificates were formally suspended. On 1 August 2017 bankruptcy followed.
The trustee in bankruptcy claimed damages from the indirect director, his holding company Minerva and two group companies: Hyperion (pledgee) and MV Nederland (customer). The Rotterdam District Court dismissed all the claims. The Hague Court of Appeal set that judgment aside and orders the director and Minerva to pay €975,000 jointly and severally — the ceiling of their combined liability. Hyperion is jointly and severally liable up to €406,245 (for the pledge that was set aside) and MV Nederland up to €973,161 (for the deliveries that were set aside).
The central question was whether the director had acted with serious culpability by continuing the business after 31 December 2016, and whether the intercompany transactions in the months before the bankruptcy would stand.
Court of appeal: hope for a good outcome is not proper financing
The court of appeal holds that continuing the loss-making activities from 1 January 2017 was seriously culpable within the meaning of Section 2:9 DCC and Section 6:162 DCC. At the end of 2016 everything came together: structural losses, complete dependence on group financing, the sending away of the API auditor in December 2016 (followed by suspension in January 2017) and the absence of external capital or a serious rescue plan. Added to this was the fact that in October 2016 a sister company (HQ) had been incorporated within the group to carry out the same activities — MVM gained an internal competitor, which further reduced the chance of external financing.
In establishing the reference date (the end of 2016), the court of appeal applies the standard from the Supreme Court judgment of 21 December 2001 (Sobi/Hurks II): because designating a tipping point is to some extent arbitrary, the chosen date must be on the safe side — in the director's favour.
The defence that talks were under way with potential investors was unconvincing. The court of appeal considers that even if potential investors seriously entered into discussions, that did not in itself give rise to a justified expectation of financing — hope is something fundamentally different. The additional group financing in the first months of 2017 only made matters worse: it enabled MVM to complete orders for MV Nederland, after which the purchase prices were set off in current account — on balance to the detriment of the external creditors.
The pledge of MVM's entire inventory to Hyperion on 29 May 2017 was set aside by the court of appeal under Section 47 Fw: pledgor and pledgee were under the management of the same person and the bankruptcy was foreseeable at that time. The deliveries by MVM to MV Nederland in June and July 2017 — worth €973,161 — met the same fate. The court of appeal estimates the loss caused by the disappeared assets at €975,000, based on valuation reports and the book value of the assets at the end of 2016.
What does this judgment mean for directors of distressed companies?
This judgment makes sharply clear where the line lies. A director may be optimistic, but must act realistically as soon as structural losses, lapsing certifications and the absence of external financing come together. Non-committal talks with investors are not a rescue plan. The court of appeal also makes short work of the argument that the director was free to decide for himself when to pull the plug: that latitude does not exist where the creditors foot the bill.
Intercompany transactions in the months before a bankruptcy are placed under a magnifying glass. Pledges to, and deliveries in favour of, group companies under the management of the same person are particularly vulnerable to being set aside under Section 47 Fw — the ground on which the court of appeal set aside all the transactions in this judgment. A director who is in doubt whether continuation is responsible would do well to seek independent advice in good time — see also the page on directors' liability. For a case in which the trustee's comparable claims were instead rejected, read the earlier analysis on the bankruptcy actio pauliana and goodwill.
Frequently asked questions
When is continuing a loss-making business seriously culpable?
If a director knows or ought to know that the company is making structural losses, cannot attract external financing and is losing essential operating licences, continuation without a concrete rescue plan is seriously culpable. The court of appeal applies a combination of objective signals: it is not about a single factor, but about a chain of circumstances that together point unmistakably towards bankruptcy.
What is the bankruptcy actio pauliana under Section 47 Fw?
Section 47 Fw gives the trustee in bankruptcy the possibility of setting aside obligatory legal acts — such as payments on due debts or pledges under an existing agreement — if the counterparty knew that the debtor's bankruptcy had been applied for, or if there was collusion with the aim of giving the counterparty preference over other creditors.
Can intercompany deliveries shortly before bankruptcy be reversed?
Yes. If deliveries to group companies take place while the bankruptcy is foreseeable and the companies involved are under the management of the same person, the trustee can set them aside under Section 47 Fw. In this judgment, deliveries of almost €1 million to a sister company were fully reversed.
ECLI:NL:GHDHA:2025:278, The Hague Court of Appeal, 4 February 2025.
Cited case law
Supreme Court: ECLI:NL:HR:2001:AD4499
Courts of Appeal: ECLI:NL:GHDHA:2025:278