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Directors’ Liability in Belgium

28-10-2014
 
 
Article by Jannick Everaerdt
 
 
1. Are directors liable for management decisions?
1. Article 262-527 Belgian Company Code (“BCC”): internal liability
•  = directors and daily managers are according to common law liable for the fulfilment of mandates they have been empowered with and for the shortcomings in their management
•  Common law = article 1382 Belgian civil code
  • Error – damage – causal link needs to be proven
  • Error = violation of law or the reasonable care principle (comparison with a director carrying out the necessary reasonable care required by the circumstances)
  • Test of reasonability: only liable when exceeding the limits of the    reasonability
•  Individual liability
•  Claim by the company not a third party
•  Examples
·     Signing a contract for the company with adverse conditions
·     Delegation of powers to incapable persons
·     Lack of bookkeeping or VAT and social security declarations
·     Lack of having a fire insurance
 
2. Article 263-528 BCC
•  Violation of the BCC or the by laws
•  Directors are held liable jointly – only escape when i- no blame to the error, ii- no participation and iii- notified at the first shareholder’s meeting
•  Examples:
·     Late deposit of the annual accounts
·     Rules regarding the bookkeeping
·     Lack of publicity regarding the dismissal and appointment of directors
•  Claim by the company or third parties
 
3. Article 1382 Belgian Civil Code
•  Error-damage – causal link needs to be proven
•  Claim by any third party
•  Example:
§   running obvious deficit activities
 
2. What is the general criteria for being liable?
1. Violation of the law or the reasonable care principle
2. Exception: manifestly gross error which has contributed to the bankruptcy of the company (article 265 -530 BCC)
 
3. Can directors be directly liable for company debts towards companies?
1. Principally NOT because:
•  Relation creditor – company is contractual => non perfomance of the contract is liability of the company
•  Director only liable insofar the error differs from the non-execution (or not good execution) of the contract and the damage differs from those following to the non execution of the contract
•  Requires almost criminal act
•  Hard burden of proof
 
2. Exception: manifestly gross error which has contributed to the bankruptcy of the company (article 265 -530 BCC): directors are held liable personally for all or a part of the debts of the company
 
 
4. Can directors be liable in case of insolvency of the company?
1. Yes:
•  Article 263-528 BCC
•  Article 265-530 BCC (see previous slide)
•  Article 1382 BCC (running obvious deficit activities, late deposit of bankruptcy, …)
2. Frequent:
•  Average
•  Mostly introduced insofar creditors are not paid
•  Introduced by creditor or liquidator
•  Requires already quite serious errors – limit with criminal act
 
5. Are directors liable in the case of closing business without filing for?
1. Possible insofar for example (not limited to):
•  Rules regarding the dissolution and liquidation
•  Equality between the creditors and order of priority of the creditors
            are not respected
 
6. Do you have a specific action to sue a director?
1. Procedure:
•  no specific procedure
•  In the event the company can hold the director liable (internal) : prior decision of the shareholders’meeting is required
2. Successfull
•  Hard burden of proof
•  Practice: mostly in case of insolvency insofar creditors are not paid – difficult to proove that the damages are the consequence of the error of the director rather then the financial situation of the company
7. Can other persons than directors / board members are liable?
1. Yes:
•  Daily manager / members of the management committee
•  Actual director (hereto not formally appointed) (article 265-530 BCC)
 
8. Estimated expected time for obtaining a judgment?
1. Depends on the jurisdiction + 1st instance / appeal
            f.ex: Brussels: 1st instance: +/- 2 years – appeal : 2-4 years
 
9. Is it convenient to include in the by-laws an arbitration clause ?
1. Not common in practice
2. Rather in management agreement
3. Timing: +/- 6 months – 1 year depending on the arbitral institution
 
10. Expected fees and costs
1. Difficult to estimate
2. Depends on several factors: number of written statements, court hearings, behaviour counter party, appointment of an expert, …
 
11. System for estimating the fees
1. Hourly rate since an estimation of the number of services is quiete hard
Sometimes with success fee
 
   
DE WOLF & PARTNERS
Jannick Everaerdt 
Place du Champ de Mars 2
1050 Brussels
+ 32 2 289 64 64