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Directors’ and officers’ liability

Running a business means taking risks. In spite of this, there is one thing that all entrepreneurs and companies have in common: their directors are not allowed to mismanage the company and thereby inflict damage on it or on third parties. There have been many high-profile cases reported in the media, such as OGEM, Vie d’Or, World Online, Landis and the perils concerning liability at Ceteco, a listed company which went bankrupt in 2000, or at the Ahold supermarket group. The management policy at these companies has been publicly called into question. In many cases, legal proceedings have even been instituted against the directors or supervisory directors, who have been held personally liable for mismanagement, manifestly improper management or misconduct.

The instances cited above are merely the high-profile cases which have been widely publicised. But large or listed companies are certainly not the only ones confronted with directors’ and officers’ liability: this liability also plays a significant role at medium-sized businesses, as well as in the everyday running of small and medium-sized enterprises (SMEs). Examples of this include cases where the directors continue to order goods from suppliers despite the fact that the business is financially unsound, or shareholders involve themselves too deeply in company policy and actually step into the management’s shoes, or parts of the company are sold at too low a price.

The number of cases in which directors of SMEs are held liable is far greater than the number of high-profile cases reported in the media. It is estimated that hundreds of directors and supervisory directors are held personally liable every year.

Directors’ or supervisory directors’ liability may crop up at any phase of a company’s existence. In many cases, these directors and officers are held liable if the company has gone bankrupt.

 

As a result, receivers often ask themselves whether the directors of the bankrupt company should be held liable, while directors of such companies are frequently obliged to defend themselves against receivers as well. But a company can hold a director personally liable for errors even if the company is running normally and there is no question of bankruptcy. In addition, directors are under threat from various kinds of personal liability from outside, e.g. if they fail to act correctly when a company is incorporated, or if they cause direct harm to creditors or shareholders.

Not only directors and supervisory directors entrusted with the management of a company, shareholders and other interested parties, but especially creditors and others involved in companies want to gain insight into the existing risks and options. This refers first and foremost to the directors of profit-oriented enterprises possessing corporate personality, such as public and private limited companies, cooperative societies and mutual insurance associations. However, directors and supervisory directors of other legal entities, such as foundations and associations, are also faced with liability risks.

This website is intended for all those who have to deal with directors and supervisory directors and with their conduct, whether this involves giving prior advice on limiting liability risks, or conducting the defence if a director has already been held liable, or even suing a director or supervisory director who has failed to perform his duties properly.

If you click on the items in the menubar, you can access information on all the different aspects of directors’ and officers’ liability. The purpose of this information is to give you a brief overview of the various kinds of liability risks that directors and supervisory directors might encounter.