Director liability in case of bankruptcy

Personal risk in case of apparent mismanagement

When a company goes bankrupt, it can have not only business consequences but also personal risks for directors. In specific situations, a director can be held personally liable for the debts of the legal entity. The curator plays a central role in this.

Bankruptcy liability: when are you as a director vulnerable?

The curator can file a claim against the directors in the event of bankruptcy if there is:

• Apparent mismanagement and
• This behavior must have been a significant cause of the bankruptcy.

The burden of proof lies primarily with the curator. However, in certain situations, such as the absence of proper administration or late filing of the annual accounts, the presumption of evidence shifts: it is then established that there is apparent mismanagement and it is assumed to be a significant cause of the bankruptcy. The director must then prove that the bankruptcy was not caused by mismanagement but rather by another external cause.

Joint liability

Director liability is essentially joint: each director can be held liable for the whole. Nevertheless, an individual director has the opportunity to defend themselves, for example, by demonstrating:

• That they were not involved in the mismanagement;
• That they are not personally at fault;
• And that they have taken sufficient measures to prevent negative consequences.

Other forms of director liability

Internal liability

A director can also be held internally liable by the legal entity itself, for example, by shareholders or subsequent directors. Liability requires a sufficiently serious personal fault attributed to the board. The question is whether a reasonably acting director would have acted differently in similar circumstances.

External liability (towards third parties)

Directors can also be personally liable based on unlawful acts. This can occur both in and outside of bankruptcy and by both a curator and individual creditors themselves. Consider situations where the director:

• Enters into contracts on behalf of the company while knowing they cannot be fulfilled and the contracting party will suffer damage;
• Makes selective payments, for example, to a financier for whom they personally guarantee.

In such cases, there must be a sufficiently serious personal fault.

Prevent personal liability

Director liability can have significant consequences. Therefore, seek timely advice about your position, both in the event of an impending bankruptcy and in relation to (complex) decisions leading up to it.

Are you unsure about your liability as a director or have you been confronted with a claim from a curator or third party? Then immediately contact our specialists for targeted legal advice.