The regime of directors’ liability was thoroughly changed when the Companies and Associations Code (hereinafter: ‘CAC’) was introduced. For example, the liability regime is no longer dealt with separately per type of company, but one bundled regime is provided for all types of companies. Another adjustment brought about by the ARC is the introduction of a legal limitation of liability.
Who can be held liable?
The law stipulates that every person who has (or had) actual power of management within a legal person can be held liable for mistakes committed during their assignment. In other words, factual directors can also be held liable.
The liability of the directors is even joint and several insofar as the managing body is a college, as well as when the managing body is not a college, but the error committed constitutes a violation of the legal provisions of the CAC or the company’s articles of association.
One can only escape this joint and several liability if one has reported the error of another director to all other members of the managing body and (if applicable) to the supervisory board.
What can one be held liable for?
One can be held liable for the consequences of actions that are manifestly outside the range of what a normal, prudent and careful director would have undertaken in the same circumstances. In other words, the bonus pater familias criterion is applied.
The directors’ liability as stipulated in article 2:56 of the CAC applies both towards the legal entity itself and towards third parties, but in the latter case only if there is a non-contractual error.
The legislator, however, chose to limit the aforementioned liability, in the sense that it introduced a statutory ceiling depending on the financial size of the legal person.
Thus, liability is limited to the following amounts:
- EUR 125.000,00 if the legal entity had an average annual turnover during the last three financial years of less than EUR 350.000,00 and an average balance sheet total of not more than EUR 175.000,00;
- EUR 250.000,00 if the legal entity has had an average annual turnover during the last three financial years of less than EUR 700.000,00 and an average balance sheet total of not more than EUR 350.000,00;
- EUR 1.000.000,00 if, over the last three financial years, it had an average annual turnover of EUR 9.000.000,00 and an average balance sheet total of EUR 4.500.000,00, or exceeded only one of these two items;
- EUR 3.000.000,00 if during the last three financial years it exceeded both of the above items, but remained below one of the following limits;
- EUR 12.000.000,00 if the legal entity had, during the last three financial years, either an average annual turnover of EUR 50.000.000,00 or an average balance sheet total of EUR 43.000.000,00.
If the legal entity has been in existence for less than three financial years, the period up until the incorporation of the legal entity will be examined.
These limitations apply for liability towards the legal entity itself as well as towards third parties and for all directors together. Moreover, they apply per fact or per set of facts giving rise to liability, notwithstanding the number of claimants or the number of claims.
The aforementioned limitations shall not apply in the following cases:
- In case of repeated (minor) fault, gross negligence or fraudulent intent or intention to cause damage on the part of the liable director;
- In the event of the joint and several liability of the directors to pay up the share capital;
- For VAT debts, debts relating to payroll tax and debts resulting from serious fiscal fraud in which directors can be considered (co-)perpetrators or accomplices;
- For debts arising from unpaid social contributions in case of bankruptcy.
A directorship entails risks, but the legislator has introduced a statutory limitation of liability in order to temper these risks somewhat.
In any case, the minimum liability of a director is always EUR 125.000,00, which for the average director will always be a substantial sum. It is therefore advisable to enquire about a possible directors’ liability insurance in order to further limit this risk, whereby one should of course always carefully examine the applicable policy conditions in order to avoid unpleasant surprises.