In principle, legal acts performed by directors on behalf of a legal entity – such as private or public limited companies, cooperative societies, associations or foundations – are only binding upon that legal entity. In some cases, directors of these legal entities can be held personally liable, particularly if the legal entity in question is no longer capable of fulfilling its obligations and even goes bankrupt. Directors are being sued more frequently by their fellow directors or by bankruptcy trustees and third parties – including investors and parties that have concluded a contract with the relevant legal entity – in order to recoup losses as well as settling scores. Another frequent occurrence at large companies in particular is that supervisory directors or members of the Supervisory Board are held personally liable for failing to properly supervise corporate policy.
Legal assistance in the event of legal proceedings
If, as a director or supervisory director, you are confronted with this kind of situation, our legal specialists will advise you and act on your behalf during legal proceedings. This might concern the following:
- internal directors’ and officers’ liability (liability vis-à-vis the legal entity);
- liability pursuant to the Second Anti-Abuse Act (inability to pay tax arrears, national insurance contributions and/or sectoral pension fund contributions);
- liability pursuant to the Third Anti-Abuse Act (liability for the entire shortfall of assets in the event of bankruptcy);
- liability pursuant to wrongful acts (vis-à-vis unpaid creditors where the director was aware or should have been aware that the legal entity was unable to fulfil its obligations and had no assets from which the debt could be recovered, frustrating recovery on the part of a director, or on the grounds of selective payment or selective non-payment where a director pays some creditors but not others).
Preventing or limiting directors’ and officers’ liability
Besides assisting our clients during legal proceedings on directors’ and officers’ liability, we regularly advise them on preventing such liability. In this respect, we check whether there are any questionable of fraudulent acts, selective payments or non-payments, and entering into obligations at a time when the relevant legal entity is no longer capable of assuming them. We can also advise you when drawing up a step-by-step plan to prevent or limit directors’ and officers’ liability. In such cases, our expertise in the field of D&O policies and our contacts with D&O liability insurers are very useful.