search icon Hamburger icon Times icon Caret Down icon Quote Left icon Facebook icon Linkedin icon Linkedin icon box twitter icon Google plus icon Youtube icon Angle Left Icon Angle Right Icon Download Icon Hubspot Icon Align Justify Icon Angle Down Icon home Icon check Icon check Icon X Twitter icon

Boost for investor-claims against auditors in the Netherlands en

Important development for institutional investors

Recently the deadline for investors to file disciplinary proceedings against auditors has been extended to 10 years after the occurrence of the facts. Currently this period is only 6 years in length, a tight deadline, which hindered investor claims coming to fruition. This is an important development that will greatly support institutional investors in seeking justice in cases of fraud or accounting irregularities.

Huge financial scandals

In the past decade some of the most prestigious audit firms of the Netherlands were involved with companies that were hit by huge financial scandals.

KPMG, for example, settled various shareholder claims related to the Imtech scandal (2014/2015) and EY settled for around 50 million euro in total to end proceedings in the Landis-case (2016). PwC furthermore paid EUR 25 million to the liquidators of Econcern and disciplinary proceedings have been initiated against Deloitte and KPMG for their roles in the EUR 2 billion Vestia scandal (2016).

Finally, Deloitte settled a shareholder claim resulting from the InnoConcepts case for EUR 6.5 million (2017) and currently the AFM is investigating Deloitte’s role in the recent Steinhoff accounting scandal. Not surprisingly, auditor liability is a hot topic in the Netherlands.

Before starting civil proceedings for damages, it is common in the Netherlands to first sue auditors before a professional body known as the “Specialised Disciplinary Chamber of the Court of Zwolle (the Netherlands)”

Generally, if successful, such disciplinary proceedings form a prelude to favourable settlements or a successful claim for damages in civil proceedings.

Disciplinary proceedings

For disciplinary proceedings currently two time limits are applicable: a short time limit of 3 years after an investor has discovered or should have discovered that an audit was inadequate and a longer absolute time limit of 6 years after the alleged inadequate audit took place.

It is mainly the 6-year time limit that affects institutional investors and funds. This is caused by the fact that often fraud or accountancy irregularities are only discovered later than 6 years after the audits took place.

Boost for investor-claims against auditors in the Netherlands_building

A bill that was approved by the Dutch House of Representatives completely removes the time limit of 3 years and replaces the absolute 6-year time limit with a 10-year time limit. The aim of the bill is that the new time limit becomes effective on 1 July 2018.

Based on Deminor’s experience with auditor liability cases, the absolute 6-year time limit is too short. As cases like Madoff, Olympus and many others have demonstrated, fraudulent schemes often occur many years before they are finally discovered. Obviously, investors can only start taking action to defend their rights and recover their losses after frauds or accounting irregularities have been discovered. Therefore, there may be a long time span between the start of the fraud and the time when investors can start taking legal action.

Besides, auditors play an important role in detecting frauds and should be incentivised to detect them as quickly as possible.

Excluding audits by implementing a short deadline from the conduct of disciplinary proceedings onwards is not the right incentive for auditors to detect frauds.

Taking the above into consideration, the extension of the time limit to 10 years is a very positive development. It fits the broader approach of improving the quality of audit services and holding audit firms accountable if they fail to perform audits in line with the applicable standards and legislation.



Joeri Klein

Written on March 29, 2018 by

Joeri Klein

Responsible for the Dutch market. Co-responsible for group-wide investment recovery cases. Head of research for Dutch collective proceedings and settlements.

Find me on

Further reading

Airbus claim dismissed: investors were timely and properly informed about the corruption scandal

Airbus claim dismissed: investors were timely and properly informed about the corruption scandal

Airbus Investors Recovery Limited’ claims for investor damages have been dismissed by the Amsterdam District Court. The court ruled that Airbus ...

Read more
The new reality of litigation

The new reality of litigation

Market abuse, market manipulation and price rigging have become anything but rare events in these days when numerous cases of suspicion concerning ...

Read more