Does a BV limit your liability?
Thursday, August 18th, 2016 by Arnold Waal
The Dutch BV company is a limited liability company, but does a BV limit your liability? My opinion is that it does not.
In the old days you could only incorporate a Dutch BV company when you were able to deposit at least EUR 18.000 on the issued shares. In the recent years the amount can be any amount and most incorporated chose to incorporate a BV company at EUR 0,01.
Incorporation BV company at EUR 0,01
Can you expect the same limited liability for EUR 0,01 as you did with EUR 18.000? In theory yes, in practice I think you should not expect that. In court common sense is part of the verdict and if you incorporated a BV company at EUR 0,01 and you are for instance a horror dentist, you should not expect that your liability is limited. The court could state that your clients did not come because of the BV company, but because of the dentist in person and then both the BV company and the person are held liable for damages.
Another aspect of the EUR 0,01 share capital is that incorporators think of it as a mickey mouse amount and tread it as a mickey mouse amount. Better said, the EUR 0,01 is forgotten about and never actually paid for the share capital. The rule is that an incorporator is personally liable until the moment the share capital was actually deposited. On top of that, while you are incorporating a BV company you will have immediate costs, like costs of the incorporating notary. A share capital that covers the initial costs would be the better option.
The above you can easily follow I assume, but there is an aspect which is more complex to understand, nevertheless, it is vital for being protected under the limited liability:
The director needs to act in the best interest of the BV company
In the situation your BV company goes bankrupt you should not think you can pull the plug and run away. There will be a curator appointed and to put the curator in perspective someone made it once picture clear to me. Assume Harvey Specter of Suits is your curator. That will make you nervous, if you would live in this TV series.
In the today’s news an article was published that a director of a BV company owes the curator EUR 1 mln. The curator asked for EUR 12 mln, but was appointed by the court with EUR 1 mln. My immediate question was how a director of a BV in liquidation can owe the curator a debt.
The situation is as follows. The BV company traded in meat. Sold horsemeat under the name beef (cow). This was discovered, on the national news and clients of this company left immediately. Conclusion: company went bankrupt.
One of the obligations of the director of the company is to act at all times in the best interest of the company. The curator came to the conclusion during his audit that the director had failed to act in the best interest for the company by selling horsemeat under the name beef, as that caused the company to go bankrupt.
That is the origin of the EUR 1 mln charge the curator has on the director.
Why would a curator involve the shareholder in person?
Why would a curator take this strategy? All curators have one aim and that is to get the person behind the shares involved in the bankruptcy, as the money is with this person. A BV that goes bankrupt is a company that cannot pay its debts anymore. An empty BV. But the shareholder/director of the BV maybe has yielded a nice income from the BV in the years that have passed. Therefore it is key for the curator to get to that money by making the person liable and claiming his assets and that of his partner.
That is how I come to the conclusion that a limited liability company does not limit the liability. The above items addressed are only a fraction of the arsenal the curator has at his disposal. The curator has a special place in the civil law and is able to undo transactions and to make a direct claim on assets which are not possible in normal legal transactions. All to protect the debtors from not getting paid.
The above is very much stated in my own words. Our business is to make aware entrepreneurs about the risks that come with doing business. If an entrepreneur has the opinion that a limited liability company will limit this entrepreneur to the amount deposited on the shares taken out to incorporate the BV company, then he is mistaken. That is the message.