Legal Representative: Managing director(s)
I – Legal Representative’s Responsibilities
What are the main responsibilities of the Legal representative as defined by the applicable laws?
The Director is responsible for the management of the company (including day to day operations of the business), which means, among others, that he is responsible for achieving the company’s aims, the strategy and associated risk profile, the development of results and corporate social responsability issues that are relevant to the company.
Taking into account the limitations as provided by the by-laws, if any.
II – Legal Representative’s Duties
Does the Legal representative have specific duties (e.g. non-compete, confidentiality)?
His main specific duties are the following:
► to act within the limits granted by the law and in accordance with the company’s articles of association;
► to manage autonomously within the limits of the law and the articles of association;
► to manage without transgression of the company’s objects;
► to act in the interest of the company and of the group;
► to exercise in the interest of other stakeholders;
► to respect the conflict of interests provision according to the law and the articles of association; and
► to respect confidentiality towards the company.
III – Legal Representative’s Civil Liability
Does the Legal representative incur a civil liability which is specific to his/her role as the Managing director?
Yes, in case of breach of the director’s duties. If found liable, a director could:
► be found liable to compensate damages either to the company or to third party,
► be ordered to restore property and assets to the company (where these were transferred unlawfully to the director),
► be liable for the debts of the company which are not paid after liquidation of the assets in the bankruptcy of the company if (i) there has been obviously improper management by the managing board, and (ii) it is likely that this is an important cause of the bankruptcy, and
► be liable for the deficit caused by a distribution of dividends if the managing board knew or should have foreseen at the time of the distribution that the company after the distribution could not continue to pay its debts due and payable.
If yes, towards whom the [legal representative] may be held civilly liable:
The Company: Yes
Shareholders: Yes only via a derivative action on behalf of the company
Third parties: Yes
What are the conditions to trigger this civil liability?
► in case of improper management, liability is only incurred in the case of serious culpability (“ernstige verwijtbaarheid”) (to be determined on a case-by-case basis);
► in case of bankruptcy, if the company does not provide sufficient resources to pay all creditors, liability is incurred in case of manifestly improper performance of duties during only the 3 years
preceding the bankruptcy. Improper management by law is supposed to have taken place in case of lack of proper administration of the company or lack op timely publication of the annual accounts.
Is this civil liability rather theoretical or actual? In other terms, is this civil liability often enforced or not?
The risk of civil liability is present, especially in case of improper management and bankruptcy.
What are the most common civil matters the legal representatives are being held liable for, taking into account the main activity of the Company?
► manifestly improper performance of duties (“kennelijk onbehoorlijke taakvervulling”) in case of bankruptcy;
► violation of the provisions of articles of association (however, the managing director concerned is given the opportunity to bring forward facts and circumstances which may lead to the conclusion that he cannot be held responsible);
► misrepresentation in annual accounts, annual report or interim statements (if published);
► distribution of dividends when the company after the distribution cannot continue to pay its debts due and payable;
► non-compliance with relevant legislation and regulations (e.g. failure to timely file the annual accounts).
May the Legal representative be held jointly and severally liable together with the Company?
Third parties cannot claim with the individual director but should claim with the company as their contract partner. Only in exceptional cases there is room for a personal liability vis a vis a third party.
For a collegial body (if any in the Company), such as a Board of directors, is the civil liability of the [legal representative] individual or joint and several with the directors?
Has the [legal representative] a wider responsibility than the other board members?
Managing directors are, in principle, collectively responsible for the management of the company (“collectief bestuur”). As a general rule, responsability of the management does not result in liability of the managing directors. Under certain circumstances, however, they may become liable, either towards the company (internal liability) or vis-à-vis others (external company).
► Joint management : if a matter is within the responsability of two or more managing directors, all managing directors are, in principle, jointly and severally liable.
However, a individual managing director may be discharged if he can prove that (i) he cannot be held responsible for the failure and cannot be held culpable for serious instances of mismanagement and (ii) he has not been – actively – negligent in preventing the consequences thereof and in undertaking actions to avert the consequences of mismanagement.
Although an assignment of duties is generally accepted in the case of joint management, it is not easily accepted that an individual managing director is not responsible for a specific matter. Furthermore, co-managing directors are expected to supervise a managing director who is entrusted with a specific task and to take action if necessary.
IV – Legal Representative’s Criminal Liability
Does the Legal representative incur a criminal liability which is specific to his/her role as the Managing director?
Yes, in case of breach of specific director’s duties. If found responsible, a director could:
► be found liable to compensate damages either to the company or to third party,
► get a fine or jail sentence.
If yes, what are the conditions under which the Legal representative may be held liable for administrative offence? See above
Is this criminal liability rather theoretical or actual?
In other terms, is this liability often enforced or not? It depends on the involvement of the Director and its role whether the Director is personnally held liable.
What are the most common criminal offenses the Legal representatives are being held liable for, taking into account the main activity of the Company ?
► Fraudulent trading; ► Health & Safety; ► Bribery; ► Environmental liability; ► Personal data protection; ► Non-compliance with relevant legislation and regulations (e.g. failure to timely file the annual accounts)
V – Legal Representative’s Administrative Liability
Does the Legal representative incur a personal administrative (including tax) liability which is specific to his/her role as Managing director?
Yes, in case of breach of some director’s duties. If found liable, a director could:
► be found liable to compensate damages either to the company or to third party,
► be liable for certain debts of the company to the tax authorities, benefits agencies and pension funds, such as social security contributions, mandatory payments into a branch pension fund, wage and turnover tax.
If yes, what are the conditions under which the Legal representative may be held liable for administrative offence?
See above
Is this administrative liability rather theoretical or actual? In other terms, is this liability often enforced or not?
It depends on the involvement of the Director and its role whether the Director is personally held liable.
What are the most common administrative offenses the Legal representatives are being held liable for, taking into account the main activity of the Company ?
► non-payment of social security contributions, tax debts and contributions to mandatory pension funds,
► failure to notify the collector of State taxes, the benefits agency or the pension fund within the legal time limits, in case the company is unable to pay any contributions or/and taxes.
VI – Mitigation tools Compliance programs and policies
May the Legal representative’s liability be exonerated / limited if he / she shows that the fault was made by an employee who did not follow the rules even though the Legal representative paid attention to the application of the compliance programs and policies within the Company (e.g. trained the employees, control their understanding / application of the compliance programs and policies, etc.).
Yes, it will help to show the absence of fault by the director.
VII – Mitigation tools Delegation of powers
Are legal representatives entitled to delegate their responsibility, fully or partially, with effect to be relieved from related liability (transfer of liability)?
No, all executive authority emanates from the board of managing directors that remains collectively authorized, responsible and liable. As a consequence, any company should apply a strict policy in the granting and content of any power.
VIII – Other Mitigation tools
Are there other well-known tools to be put in place to mitigate the liability of the legal representatives?
► clearly defining tasks in the articles of association or in the managing board rules and/or committees rules;
► the company or the group companies should have a D&O insurance for the benefit of its directors;
► entering into an indemnity agreement with the company pursuant to which the director is indemnified against any liabilities that he may suffer or incur as a result of his directorship. However, the indemnity must not exempt the director from any liability in relation to any negligence, wilfull misconduct. default or breach of duty or breach of trust in relation to the company;
► getting shareholder approval for some actions. It is a defence for the director to show that either he was acting in accordance with the general duty to promote the success of the company or that the act or omission giving rise to the cause of action was authorised or ratified by the shareholders of the company.
Gwénaëlle PENNEC
19-09-2019
