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Directors of a corporation should properly carry out their management duties and be aware of the liability<\/strong> involved. After all, directors of a corporation are responsible for their business<\/strong> and therefore for the errors committed during the exercise of their managerial duties.<\/p>\n When damages result from failures attributable to them, directors can be held liable.<\/p>\n Who is liable?<\/strong><\/p>\n Directors' liability to their company does not only apply to legally or statutorily appointed directors.<\/p>\n The Companies and Associations Code provides that any person who has actual managerial authority<\/strong> (or had) within a corporation, liable<\/strong> can be held liable for mistakes committed during his or her assignment. In other words, de facto directors are also liable<\/strong>.<\/p>\n Moreover, directors' liability is joint and several when the governing body constitutes a college or when the error violates the Articles of Association or the Companies and Associations Code. This joint and several liability can be broken when directors prove that they had no part in making the board error and reported it to their fellow directors.<\/p>\n What mistakes are directors liable for?<\/strong><\/p>\n Common board errors<\/strong><\/p>\n This category includes the general management errors<\/strong> made during the execution of the board order. Typically, general standards of good policy such as forgetting to purchase certain insurance or failing to protest an invoice.<\/p>\n Obvious gross errors that contributed to bankruptcy<\/strong><\/p>\n When a director makes an apparently gross mistake that later gives rise to bankruptcy, the director can be held liable for some or all of the debts. Examples include serious tax fraud or failure to keep accounting records.<\/p>\n Wrongfull trading<\/strong><\/p>\n With wrongful trading<\/em> is meant The deliberate continuation of a loss-making activity<\/strong>, without a recovery plan or measures. Ignoring that your ship is sinking and allowing it to continue sailing can give rise to personal liability of the director. If the company goes bankrupt, the court may order director(s) to pay some or all of the net liabilities.<\/p>\n Violations of law or statutes<\/strong><\/p>\n As a director of a company, you can be held liable for violations of the law or the company's articles of association. Typical examples are failure to file or late filing of annual accounts or acting outside the statutory purpose.<\/p>\n Extra-contractual errors<\/strong><\/p>\n Directors are also liable for damages resulting from extra-contractual errors committed against the company or against third parties.<\/p>\n How to protect yourself from directors' liability?<\/strong><\/p>\n The most effective way to protect yourself as a director against director liability is to take out a insurance<\/strong>.<\/p>\n Depending on the type of insurance, the directors' private assets are protected, non-contractual damages to third parties as well as the risks of contractual damages arising from the performance of business activity.<\/p>\n Normal careful foresight person<\/strong><\/p>\n In principle, directors can only be held liable for actions that exceed the bounds of \"normal driver behavior. To determine this framework, we look at how a normal, prudent and foresighted person placed under the same circumstances<\/strong> would act.<\/p>\n This takes into account all circumstances, including the fact that drivers are sometimes forced to quickly and in uncertain circumstances<\/strong> make decisions.<\/p>\n Collegial governance<\/strong> report mistakes and distance yourself from them. If you are part of a collegial board, you can be held jointly and severally liable for mistakes made by fellow board members.<\/p>\n Thus, regardless of whether you yourself are at fault you will be held liable for the errors of the board<\/strong>. To escape liability, it must be proven that you have no share<\/strong> had in making the mistake.<\/p>\n Directors who notice an error should report it to one of their fellow directors. Do this in writing<\/strong>, so that there is evidence of the report or of the fact that your opinion as a director differed from that of your fellow directors.<\/p>\n The cap on directors' liability<\/strong><\/p>\n Since the new Companies and Associations Code, the legislature has introduced a liability limitation for directors<\/strong> introduced. The extent of the liability limit is determined according to the company's average balance sheet total and average turnover over the past 3 years (4 categories based on turnover\/balance sheet total with a cap of EUR 125,000 to EUR 12 million).<\/p>\n However, the legislature has provided for many exceptions, making the cap de facto<\/em> only applies in the case of an accidental slight error. This largely erodes the principle.<\/p>\n