Shortly before going bankrupt, the Belgian Thomas Cook companies made appointments to visit the notary and arrange for an opt-in, making the new Belgian Code of Companies and Associations applicable before 1 January 2020. One of the results is that the new limitation of directors’ liability up to a maximum amount became applicable before the statutory date of entry into force, i.e. 1 January 2020 [source: De Tijd, 10 October 2019].
The new legislation does indeed offer a new and clearly defined directors' liability regime, by means of the newly inserted Articles 2:56 to 2:58 of the BCCA. The intention of the legislator is manifold: to make it easier for directors to take out liability insurance, to make the entrepreneurial risk more acceptable and to provide greater clarity for every stakeholder by limiting liability. Although this regime will automatically apply from 1 January 2020, there are some companies that have applied an 'opt-in' so that this rule can be applied with retroactive effect. Is the new regime really that promising? We will explain in this newsletter.
A clear liability regime for all types of legal entities and all directors
Whereas in the past, liability was differentiated according to the different types of companies, this new general liability regime applies to all types of legal entities (limited companies, public limited companies, non-profit associations, partnerships, etc.).
De facto managers, i.e. those who have the actual management authority over the legal entity but have not been formally appointed, are also liable in the same way as the formally appointed director.
Directors’ liability: maximum limits
The new limits are calculated according to average turnover (excluding VAT) and the average total of the company’s balance sheet over the previous three financial years before a liability claim is brought:
- Turnover less than EUR 350,000 and a total balance sheet less than EUR 175,000 - Maximum EUR 125,000 directors’ liability
- Turnover less than EUR 700,000 and a total balance sheet less than EUR 350,000 - Maximum EUR 250,000 directors’ liability
- Turnover between EUR 700,000 and EUR 9,000,000 or a total balance sheet between EUR 350,000 and EUR 4,500,000 - Maximum EUR 1,000,000 directors’ liability
- Turnover less than EUR 50,000,000 and a total balance sheet less than EUR 43,000,000 - Maximum EUR 3,000,000 directors’ liability
- Turnover more than EUR 50,000,000 or a total balance sheet more than EUR 43,000,000 - Maximum EUR 12,000,000 directors’ liability
These thresholds apply to all directors jointly, per event or series of events giving rise to the liability, regardless of the number of claimants or claims.
No contractual limitation of liability
Limitations of liability below the legal limits cannot be set contractually, nor can the legal entity waive a liability claim in advance against a director. This means that these entities will likewise not be liable for the financial consequences arising from liability. Any provision in an agreement or articles of association in this respect shall be deemed null and void.
Differentiation
However, there are distinctions in the way liability is limited and liability does not apply in the following cases:
- Minor accidental mistakes that are not deliberate;
- Gross negligence;
- Intentional fraud;
- Intent to cause damage (intentional misconduct);
- Mistakes in terms of obligations concerning valid subscription of shares, payment of contributions and capital, etc.;
- Fiscale of parafiscale schulden (onder bepaalde voorwaarden);
In specific terms, this usually means that - in short - liability can only be limited in the case of minor, accidental mistakes. Therefore, caution is still required when exercising directorship. It is important to note that in principle, the limitation of directors' liability does not apply if a claim is brought against the director in his capacity as a shareholder or founder (e.g. founder's liability), but not in his capacity as a director.
Entry into force?
The limitation already applies to new companies, incorporated from 1 May 2019.
For existing companies, this will only apply to loss-causing events that take place after 1 January 2020, i.e. the date when the Belgian Code of Companies and Associations starts to apply in principle to existing legal entities. However, for companies that have opted in advance for the new BCCA by amending their articles of association (opt-in), this regime will indeed apply retroactively.
For more information or if you have any questions, please contact your DNF advisor.