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Directors’ Liability in Sweden

27-10-2014
 


Workshop Track B
Directors Liability In Corporate Law:
Cross Jurisdictional Comparative Discussion. Article by Lars Engström


The purpose of this workshop is comparing the applicable law in different jurisdictions related to the liability of the directors and board members of the companies.
 
We have prepared some key questions that we consider are the practical approach for comparing the legal actions and situations in each jurisdiction.
 
The objective is to have a good range of information of the situation and opportunity of success of the legal actions against directors and the liability consequences. We know that the criteria could vary substantially from one country to another and also the time for obtaining a judgment, the feasibility of certain processes, the arbitration as a good solution…
 
We will discuss the information offered by participants during the workshop, and in the following days or weeks we will publish the results of the workshop on the IPG web site.

What is expected from you

The questions should be answered by written as follows. It is not expected a deep answer but a brief crisp expert note according to your practice.
For those lawyers of the same jurisdiction it is required to work together giving a common response. If in the same country you have different statements of law corresponding to different states or regions, please indicate each.
 
Please indicate your name and jurisdiction in the top of your questionnaire.

Questions 

1) Are directors liable for management decisions? Yes
 
2) What is the general criteria for being liable? Ex. To cause a damage, to act with minor or soft guilt, imprudence, negligence, bad faith, fraud, malice...) Damaging the company by an act or omission due to negligence or bad faith.
 
3) Can directors be directly liable for company debts in front of the company’s creditors without proving that directors have been guilty? In which cases? For example in certain jurisdictions, directors are directly liable in front of the creditors of the company when they are obliged to promote the dissolution of the company and they do not do it in the required time, in certain cases, for example when losses accumulated imply that the net asset is less than half of the issued capital.
 
Yes, if the company´s net equity falls under 50 % of the registered share capital, the directors or the general Manager has to make a balance sheet for controlling purpose, whereby any proven overvalue in assets may be activated to market value less costs for sale (calculated). If such a balance sheet still shows a deficit an extra shareholders meeting is to be summoned immediately for the purpose to decide whether the company should be put into a volunteer liquidation at once or given a chance to restore the share capital in full within eight months. At the end of the eight months respite, a new balance sheet has to be produced to evidence that the share capital is fully restored. If the directors or shareholders don´t comply with these rules, they will be jointly and severally liable with the company for any debts incurred after the actions omitted should have been taken. These rules are being increasingly used!

Can directors be liable in case of insolvency of the company? Is this situation of responsibility frequent in your jurisdiction in insolvency cases?
 
Yes, under certain conditions if they have continued the activities instead of putting the company in bankruptcy or reconstruction in time and that has caused losses to creditors otherwise not incurred. Very unusual, I’d say.
 
4) Are directors liable in the case of closing business without filing for insolvency? Yes, see comments above. A voluntary liquidation, where all creditors are satisfied is of course an alternative.
 
5) Do you have a specific action to sue a director when he/she produces damages not to the company but to the creditors or shareholders? Is this legal action successful for recovering the damage suffered by the claimant? Yes, there are certain time bars etc to be observed.
 
6) Can other persons than directors / board members be liable? Ex. Managers, officers? Yes, if the company is in breach of the rules mentioned under sec. 3 above, anyone who acts for the company with knowledge of the situation could be held responsible.
 
7) What do you estimate would be the expected time for obtaining an enforceable judgment in a legal action before Court against the directors? For example a temporary enforcement pending of Court of Appeal decision. Hard to say, could take considerable time, more than a year in first instance.
 
8) Is it feasible /convenient to include in the by-laws of the company the arbitration clause for claiming to directors? What is the expected time for the arbitration award? No, I don´t think so
 
9) What are the expected fees and costs for a law suit like this? Impossible to say.
 
10) What is/are the usual system/s for estimating the fees? Ex. Hourly rate, cap fixed budget, success fee - quota litis. For a member of the bar, the fees are to be reasonable with respect to the value of the dispute, time and complexity. In court cases, the court decides based on what the party in question claims and objections from the other party. When charging, most lawyers apply some hourly rate.
 
Advokatfirman Engström & Co AB
Lars Engström
Kansligatan 1
211 22 Malmö
T +46 40 30 90 70