Pierre DEMOLIN · Jérôme MATERNE · Dimitri DE SART

The Directors’ liability under Belgian Company Law and Financial Law

Under the Belgian Law, the Directors may be held liable in more than one way:

• Liability for breach in the management
  [i.e. breach of duty or breach of trust in relation to the company] (Article 527 of the Belgian Company Act)
  
• Liability for breach of the Belgian Company Act or of the Company Statute
  (Article 528 of the Belgian Company Act)
  
• Liability for serious and indisputable misconduct leading to bankruptcy
  (Article 530 of the Belgian Company Act)
  
• Liability in regard to specific operations

1. Liability for breach in the management [i.e. breach of duty or breach of trust in relation to the company] (Article 527 Belgian Company Act)

Directors may be held liable in case of breach in the management in regard to the mission they accomplish. Indeed, following Article 527 of the Belgian Company Act, directors, members of the board of directors and managing directors are liable in accordance with general law for the execution of their directors’ appointments and for the breaches committed in the course of their management. Serious breach consists in a wrong execution of the director mandate. The criterion to appreciate the breach (positive act or omission) is the criterion of the director who is normally careful and competent.

Examples of breaches:

• To conclude a contract with a non registered undertaker
• Lack of proceeding against a debtor in due time
• Lack of control and monitoring of the managing director
• Non-execution in due time of the required formalities such as the renewing of a commercial lease…

The non respect of a compounding plan, without the auditor - who statutes on the stay of bankruptcy - and the Commercial Court being informed immediately, may be considered as a serious breach in the management.

2. Liability for breach of the Belgian Company Act or of the Company Statutes

Article 528 of the Belgian Company Act provides that the Directors are jointly and severally liable either towards the company either towards third parties, for any compensation resulting from infringements to the provisions of the Belgian Company Act or the Statutes of the company. Their liability – only for infringements they did not take part in - may be discarded only if no fault is imputable to them and if they have denounced the infringements to the immediate next General Assembly after having noticed the infringements.

Concerning the infringements to which they did not take part in, the liability of the directors and the members of the Board of Directors may be discarded only if no fault is imputable to them and if they have denounced the infringements where appropriate at the first General assembly or at the first session of the board of Directors following the moment after having noticed the infringement.

Examples of breaches:

• Absence or delay in the publication of acts and decisions requiring publication, such as the nomination of directors or the annual accounts.
• The non adaptation of the Statutes to new legal requirements.

3. Liability for serious and indisputable misconduct leading to bankruptcy (Article 530 BCA)

The liability of the Directors may be sought in case of bankruptcy of the Company if it is established that they have committed a serious and indisputable fault which have directly contributed to the bankruptcy in accordance with Article 530 of the Belgian Company Act. The basis of this liability allows the condemnation of the directors to cover the company debts wholly or partially, with or without joint and several liabilities to the amount of the over indebtedness.

The serious and indisputable fault is the fault which is “unforgivable” and which is contrary to the essential norms of a society; it is the fault a reasonably careful and diligent director would not have committed.

Is presumed to be a serious and indisputable fault any serious and organised tax fraud under the meaning of Article 3, §2 of the Law of the 11th of January 1993 relating to the prevention of the use of a financial system in order to achieve money laundering.

Examples of infringements:

• false accounts or failure to comply with accounting regulations;
• misuse by a directors of company goods;
• the continuation of the business, which is seriously deficient and making huge losses leading to bankruptcy;
• lack of monitoring in the evolution of the business;

Paragraph 2 of Article 530 provides also that the National Office for Social Security (Office national de Sécurité Sociale (ONSS)) and the curator may hold liable directors, former directors and shadow directors - personally, jointly and severally - for the totality or part of the social contributions, increases, interests on late payment and complementary indemnity, due when bankruptcy is pronounced if it is established that they have committed a serious fault which is at the basis of the bankruptcy.

4. Liability in regard to specific operations

Directors may see their liability engaged in regard to determined operations namely:

• Failure to convoke the General assembly in case of revealed losses (article 633 BCA)
• Delay to present the annual accounts

5. Law of the 20th of July 2006

The 20th of July 2006 program Law provides two new hypothesis in which directors may be held liable:

• Payroll tax (or income tax on wage – Précompte professionnel)

A new Article 442quater has been inserted in the income tax Act 1992 (CIR 1992):

“Article 442quater

§1. In the event of failure by a company … to its obligation to pay income tax, the company director(s) or the legal person in charge of the day to day management of the Company or of the legal person are jointly and severally liable if the failure is imputable to a fault … committed in the management of the company. This joint liability may be extended to other directors of the company or of the legal person when the fault leading to the breach as provided for in alinea 1st is established in their regard. Directors of the company or of the legal person must be understood in the present Article as any person who, de jure or de facto, holds or held the power to manage the company or the legal person, excluding legal representative.”

A joint liability mechanism based on Article 1382 of the Civil Code has been put in place. This implies that if one wishes to hold a director liability, traditional requirements (regarding article 1382) must be met as for any civil liability that is to say: fault – damage – causal relation.

Furthermore, new Article 442quater has establish a mechanism of presumption:

“In the event of repeated non payment by the company or the legal person of the payroll taxes, this non payment is presumed to result in a fault committed by the directors or manager of the company.”

In practice, it will be the failure of payment of at least 2 fallen quarterly debts during a one year period, and in case of monthly payment of the payroll tax, the failure of payment of at least 3 fallen debts during a one year period.

• VAT

Article 15 of the 20th of July 2006 program Law modifies the VAT Act adding Article 93undescies which, except for some nuances, provides the same prescriptions as provided for non payment of the payroll tax.

In the VAT matter, the presumption will be established whenever the Company fails to pay at least two or three fallen debts during a one year period, depending on the fact that the VAT taxpayer is fulfilling the VAT declaration on a quarterly or monthly basis

An eventual legal proceeding based on Article 442 Quarter of CIR 92 shall only be admitted at the expiration of a one month term from the warning addressed by the collector by registered letter. The one month delay is not prejudicial to other measures such as a seizure for instance.

6. Law of the 27th of December 2006 – joint liability for the ONSS debts (social security contribution)

Since September 06 the first, company managers and directors may be held liable jointly and severally of the payment of the social security debts to the ONSS if the bankruptcy of the Company contributions is caused originally by a serious fault committed by directors or managers or if the directors and manager have already been in the past implicated in a bankruptcy or winding up.

The same sanction may be applied to company directors and managers and of certain associations (non profit organisation for instance) they omitted to forward to ONSS clients’ data and third parties data, as well as any due amount of which they are still indebted.

Debts due to ONSS for which they may be held jointly and severally liable are all social contribution amounts overdue, increases and late payment interests.

Pierre DEMOLIN, Partner
Jérôme MATERNE, Lawyer
Dimitri DE SART, Lawyer
Demolin Brulard Barthelemy
BELGIUM