On 10 June 2026, the Limburg District Court delivered an interesting judgment on directors' liability in the context of a failed startup. The bankruptcy trustee argued that the company's directors had manifestly mismanaged the company and were therefore liable for the entire bankruptcy deficit. The court dismissed that claim but did hold the directors personally liable for preferential payments made to affiliated parties shortly before the company's bankruptcy.
The bankrupt startup developed and marketed an innovative product: a Smart Level System for tables. The company was financed by its shareholders and external investors. Despite substantial investments, sales fell short of expectations. The company incurred significant losses and its liquidity problems continued to worsen.
The directors and shareholders held discussions on cost reductions, additional funding, and a possible restructuring. On 9 January 2024, the managing director concluded in an email to the shareholders that there was "no alternative but to file for bankruptcy." The company was ultimately declared bankrupt on 20 February 2024. The bankruptcy trustee subsequently held the directors liable for the company's outstanding debts.
The court emphasised that taking risks is an inherent part of doing business. Business decisions that, with hindsight, prove to be unsuccessful do not automatically amount to manifestly improper management. That threshold is only met in cases of recklessness or serious incompetence.
According to the court, the bankruptcy trustee had failed to identify with sufficient specificity which management decisions no reasonably competent director would have made under the same circumstances. The fact that the company was a startup also played an important role. It is not unusual for startups to have limited equity and to rely on external financing to meet their day-to-day operating costs. The financing arrangements had been entered into on customary and market-based terms.
Moreover, the directors had actively taken measures to improve the company's position, including reducing costs and seeking additional financing. The fact that the business ultimately failed to become profitable did not mean that the directors had engaged in manifestly improper management.
The court reached a different conclusion regarding payments made to affiliated parties. As a general rule, directors are free to decide which creditors should be paid and in what order. However, that principle changes once bankruptcy has become reasonably foreseeable.
In this case, after the directors themselves had indicated that the company would file for bankruptcy, they nevertheless authorised payments to affiliated parties, while other creditors remained unpaid. The court therefore held the directors personally liable and ordered them to repay those preferential payments to the bankruptcy estate.
This judgment demonstrates that courts are reluctant to find manifestly improper management where a startup simply fails. Directors are afforded considerable freedom to take entrepreneurial risks and, inevitably, to make mistakes. That freedom, however, diminishes once it becomes clear that bankruptcy is unavoidable. From that point onwards, directors should exercise particular caution when making payments to themselves or to affiliated parties.
Do you have questions about directors' liability? Please contact Sonja Geldermans, lawyer in our Corporate Law team.
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