Director liability: risks, legal caps and protection

Why director liability matters

Accepting a board seat puts your personal assets at stake. The Belgian Code of Companies and Associations sets out director liability in detail. You can read the text on the Belgian Official Gazette website. Above all, the Code introduced caps that limit the amount payable in most cases.

Four areas of director liability coexist:

• Towards the company, for a management fault.
• Towards third parties, for a fault that causes them harm.
• Under criminal law, for an offence committed within the mandate.
• Under tax and social security law, for certain unpaid debts.

The management fault: the prudent-director test

The law compares your conduct with that of a normally prudent and diligent board member. The judge steps into the same circumstances you faced when deciding. So the court does not judge with hindsight. A reasonable decision that turns out badly does not automatically trigger director liability.

Joint responsibility on a collegiate board

On a board, decisions remain collective. For a breach of the Code or the articles, directors answer jointly and severally. A board member escapes this if they took no part in the fault. They must also have reported it to the other board members. So always have your objection minuted.

Caps on director liability

Since the Code came in, director liability has a ceiling. The amount depends on company size. That size relies on the average turnover and balance sheet total of the last three closed financial years.

• €125,000 for the very smallest entities.
• €250,000 for entities just above that first threshold.
• €1,000,000 for other small companies under the Code.
• €3,000,000 for mid-sized companies.
• €12,000,000 for large companies and public-interest entities.

When the cap offers no shield

The ceiling falls away in several situations.

• A minor fault that occurs habitually rather than by accident.
• A serious fault.
• Fraudulent intent or an intent to cause harm.

In other words, the cap mainly covers a one-off error, not repeated negligence.

Director liability in a bankruptcy

Bankruptcy opens further claims against company officers. The trustee can seek a contribution to the debts for a manifestly serious fault that contributed to the bankruptcy. The trustee can also act if the board kept trading with no reasonable prospect of recovery. Our guide to bankruptcy proceedings explains the process.

Tax and social debts: separate rules

Some public debts target officers directly. For unpaid payroll withholding tax or VAT, the law makes directors jointly answerable, under conditions. So watch those payments first when cash gets tight.

Criminal exposure

The mandate offers no protection from criminal courts. Prosecutions notably cover:

• Misuse of company assets, when an officer uses them for private purposes.
• Forgery in the accounts or other documents.
• Bankruptcy offences, for instance when assets disappear.
• Tax fraud.

Insurance normally covers neither criminal fines nor fraud.

Protecting yourself: four tools

Each tool covers part of the risk, never all of it.

D&O insurance

D&O insurance pays defence costs and damages that directors owe. The company often takes out the policy on their behalf. Check the exclusions, the insured amounts and the period of cover. Our guide to legal expenses insurance completes this point.

No exemption by the company

The company may not exempt its directors in advance. Nor may it promise to indemnify them against director liability. Insurance, on the other hand, remains allowed. So distrust any clause in the articles that promises the opposite.

Discharge

Each year, the general meeting votes on the directors' discharge. This discharge covers acts that shareholders knew about through the annual accounts. It does not protect against concealed faults, third-party claims or criminal prosecution.

Documented governance

The best protection remains rigorous governance.

• Record every major decision in minutes.
• Apply the conflict-of-interest procedure set out in the Code.
• File the annual accounts on time.
• Track cash with a twelve-month plan.

Mistakes that trigger director liability

These are the situations we see most often.

• Letting one partner run things alone, with no oversight or information.
• Continuing to invoice and order while the company can no longer pay.
• Signing the accounts without reading them.
• Resigning without publishing the end of the mandate: see our guide on changing a board member.
• Relying on an exemption clause in the articles.

Planning ahead with a forecast

Many claims against directors start with poorly tracked cash. An up-to-date financial forecast warns you before the company stops paying its debts. With Juristelo, you track cash flows and document your assumptions. During an audit, you can show that each decision rested on figures. Your defence against director liability becomes stronger.