Private assets and bankruptcy

Published by:

Netherlands Chamber of Commerce, KVK

4 min read

If your business goes bankrupt, your assets are impounded. They will be used to pay off the debts as much as possible. Your business assets will be impounded, and in some cases also your private possessions, for instance your house, furniture or car. Are you personally liable for your company debts? It depends on the legal business structure of your company.

If your business is not a legal entity, like a sole proprietor or a general partnership, you as director are personally liable for your company debts. Both your company assets and your private capital will be used for paying off your debts.
If your company is a legal entity, such as a private limited company, you are usually not personally liable for the company debts. The company assets and your private capital are separate.

You are personally liable for paying debts

You have a business structure without legal personality. When you incur debts or go bankrupt, you are personally liable with your private capital. If you don’t have enough money in your company (company assets) to pay off your debts, you will have to pay the rest of the amount from your personal belongings. This means that you may lose all possessions of any value, such as your car, your savings and your house. The following legal business structures are not legal entities, and usually consist of natural persons:

sole trader (eenmanszaak)
general partnership (vof). You can make agreements about your liability in a general partnership contract (in Dutch). This allows you to limit your liability.
limited partnership (cv)
professional partnership (maatschap)

When you have a professional partnership, in some cases you are liable for the debts of another partner:

The partners have given each other power of attorney in a partnership contract.
The partners have decided together to perform an action or transaction. For example, to hire a receptionist or to rent practice space.
In these cases, the partners are all equally liable for the debt of the partnership.

Legal entity as partner

It is possible for legal entities to be partners in a commercial, limited or public partnership. If the partnership incurs debts or goes bankrupt, these legal entities will also be liable for paying off the debts.

Silent partner

Silent partners are not liable for the debts. Does the silent partner get involved in the business and break the silence? Then they are liable.

Your spouse may also go bankrupt

If you have entered into a marriage or registered partnership with community of goods, your partner will be fully liable for the company debts with their private capital as well as you yourself. You can prevent this from happening. For instance, by signing a pre-nuptial agreement, or by taking out a clause with your registered partnership contract that specifies both the partners’ private capital.

You are not personally liable for paying debts

Your business is a legal entity. Only the company assets will be taken into account for the bankruptcy process. The director is not personally liable with their private capital, and so does not have to pay the company debts with their private possessions. That is, unless they are held accountable, or have signed agreements as a private person. These business structures are legal entities:

Association with limited jurisdiction

Are you a director of an association with limited legal capacity? If the association is not registered in the Dutch Business Register, you are liable with your private assets for the debts of the association. Is the association registered with the Netherlands Chamber of Commerce, KVK? Then you are liable in addition to the association if it is clear that the association does not comply with the made agreements.

Liability members cooperative

Whether or not the members of a cooperative are liable depends on the form you chose at incorporation:

UA: Excluded from Liability. This means that the members are not liable for debts of the cooperative. Not even after bankruptcy.
BA: Limited liability. The members are liable for the debts up to an agreed amount.
WA: Legal Liability. The members are jointly and equally liable for the deficit of the cooperative.

Exceptions: when are you personally liable?

You can be held accountable for company debts as a director of a legal entity. If that happens, you will have to pay the company debts from your private capital.

In case of mismanagement

A director is personally liable for company debts in case of:

fraud, such as falsification of documents;
running unnecessarily large financial risks;
taking decisions with far-reaching financial consequences without proper preparation;
failure to pay taxes or social insurance premiums on time, and failure to report your insolvency to the Tax Administration on time.

If you co-sign as a private person

You are also personally liable if you sign an agreement both as a director and a private person. For example, banks often ask you to co-sign as a natural person when applying for funding for your company.