Executives’ so-called quasi-immunity has been a pillar of the Belgian legal system for decades. It offered protection to executives and limited their personal liability.

However, this rule could also lead to unfair situations. If a subcontractor did something wrong, for instance, only the main contractor could be held liable. If the latter went bankrupt, customers had no further recourse.

This quasi-immunity has now disappeared thanks to the introduction of a new extra-contractual liability code as part of a general overhaul of the centuries-old Belgian Civil Code, initiated by former Minister of Justice Koen Geens (CD&V).

Since the law’s entry into force, executives no longer benefit from automatic protection. Aggrieved customers and clients can now sue directors and officers directly for damage resulting from their errors.

The implications are mainly relevant to corporate executives. Previously, a criminal offence was required to be able to hold an executive personally liable for a company’s error. Now, simple errors are deemed sufficient, such as a breach of company law or lack of due diligence.

The risk of personal liability has increased significantly, and officers may now find themselves required to defend themselves in court.

This also impacts employees. While previously they could only be held liable for serious or intentional errors towards their employer or third parties, customers can now sue employees directly in the event of an error.

Employers can protect their employees from the disappearance of automatic protection through exclusion clauses in contracts with customers. Furthermore, employees can invoke liability limitations in their contracts with employers.

Although the new law did not provide for such protection originally, this was later added after lobbying by the business community. Still, many executives do not yet have such contracts, particularly at smaller companies. Many liability insurance policies also require updating after the change in code.

In principle, the new rules apply to all new claims, even if the liability is based on existing contracts.

Some experts are sceptical about this reform due to the risk that a company’s solvency risk will now be born by its executives. Others stress that the previous system was unfair and difficult to understand, while directors and officers still enjoy considerable protection under the updated company law.

Source: De Tijd