Liabilities of directors
|Liabilities of directors|
The main principle of directors' liabilities is that they must act with the care of a reliable, prudent businessman. Directors are jointly and severally liable for any damage suffered as a result of a breach of this obligation. It is the directors' responsibility to demonstrate that they have met the requirements of this obligation. Any violations may result in civil and / or criminal penalties. In principle, the duty of diligence lies with the company, and hence it can enforce these obligations or claim damages arising out of violation of these obligations. However, there are circumstances in which the entity shareholders or categories of shareholders, as well as third parties, may assert their rights directly against directors (Paul J. Omar, 2011, s. 12-14).
Liabilities of directors - Directors usually do not have personal responsibility for actions, but may be sued by shareholders for violation of directors' duties. In general, they are also not responsible for errors of assessment but may be sued by third parties or shareholders for negligence. However, they are held solely responsible for failures to withhold and/or competencies at the source of taxes, such as employee source deductions and sales taxes, such as general sales tax or value-added tax.
Examples of liability
The director may be personally responsible:
- on contracts signed by him allegedly on behalf of the company before its founding
- for damages if as a result of negotiating a contract between a company and a third party, it is misleading as a result of fraud or neglect
- based on a contract, unless he explains that he concludes the contract in person and not as a company representative.
- a third party for damages arising from a breach of an implied guarantee of authority, if it concludes a contract on behalf of the company, but exceeds its authority in this respect, and therefore the company is able to withdraw from the contract.
In section 25(3) of the Company Act, specific examples of cases where directors are found guilty of violating due diligence are listed. They include (Paul J. Omar, 2011, s. 14-15):
- when the director, contrary to the provisions of the Companies Act or company statute, distributes the company's assets.
- when the director makes payments from the company's funds after the day on which the directors were obliged by law to file for bankruptcy.
Liability also arises for any violation of anti-competitive provisions contained in art. 24 of the Act on companies, which results in a loss for the company (Paul J. Omar, 2011, s. 14-15).
- Anderson H. (2008), Directors' Personal Liability for Corporate Fault: A Comparative Analysis, Kluwer Law International BV, The Netherlands
- Campbell C. (2007), International Liability of Corporate Directors, Yorkhill Law Publishing, Salzburg
- Davies P., Klaus J. H., Nowak R., Van Solinge G. (2013), Corporate Boards in European Law: A Comparative Analysis, Oxford University Press, Oxford
- Larcker D., Tayan B. (2011), The Duties and Liabilities of the Board of Directors, FTPress Delivers Upper Saddle, New Jersey
- Omar P. J. (2011), Directors' Duties and Liabilities, Ashgate Publishing and Dartmouth Publishing Company, New York
Author: Łukasz Gil