Liability of company directors
Civil liability of company directors
As a company director in the EU, you can be held personally liable by your company for breaches of duty. While the concrete conditions of liability are subject to national laws, certain EU-wide rules set minimum standards that businesses must follow in all EU countries. These rules also shape the duties of directors.
When can directors be held liable?
The concrete conditions of civil liability are contained in national laws. There are, however, general principles commonly shared by the different national legal systems.
Respecting legal requirements
As a matter of principle, EU Member States will likely allow for a company to sue its directors for damages if they do not respect the law (duty of legality). Legal obligations applicable to the company can be contained in EU regulations or in national law. Oftentimes, these national laws are shaped by EU directives, which do not directly bind the company but the EU country where it operates.
As to the relevant legal obligations for directors, examples are reporting and audit rules. Hiding losses, approving false financial statements, or other forms of financial mismanagement can trigger personal liability. In addition, ignoring the risk of insolvency and not acting when a company is at risk of going bankrupt usually constitutes a breach of duty. Disregarding transparency and disclosure rules, shareholder rights and corporate governance standards can likewise lead to directors being held liable. Finally, environmental regulation, antitrust laws and other statutory provisions in the public interest must be respected. The damages a company can recover in the case of unlawful conduct of its director may consist in the administrative fines imposed on the company.
Acting in the company’s best interest
Even though no statutory provision has been violated, directors may still face civil liability vis-à-vis the company if they fail to act in the company's best interest – for example, making reckless decisions that harm shareholders or creditors. The formulation and the level of detail with which such duties are expressed vary in the different Member States of the EU.
Other forms of liability
Finally, it is important to note that civil liability vis-à-vis the company is not the only form of liability with which directors might be faced: tortious conduct might lead to direct claims of third parties based on tort law and breaches of statutory provisions can also imply administrative or criminal sanctions.
Read more about the rules in your country of establishment, or in the country you want to expand your business to: