Being a director of a company or a non-profit organisation comes with important responsibilities. You perform actions that bind the company. An error or omission in the performance of your duties may have serious consequences and involve damage. Moreover, you may be personally obliged to compensate this damage, which may put your private assets at risk.

Failure to meet standard of 'good director'

If a director does not carry out his duties carefully and causes damage as a result, he can be held personally liable. Such an error of management does not necessarily have to be a legal violation, but also refers to the general standards of good management. Just think of damage caused by not applying for certain subsidies or by forgetting to take out the necessary insurance. Another example is an accident at work in which someone is seriously injured or even killed. The coronavirus, too, can lead to claims for damages. The company must take necessary and compulsory measures to adapt to the 'new normal', with rapidly changing rules and legislation. This may well be accompanied by policy errors.

Manifest grave error leading to bankruptcy

If a director makes a serious mistake that later leads to the bankruptcy of the company, he is also personally liable. Typical examples are failure to keep accounting records or serious tax fraud. The liability is usually towards the trustee and third parties.

Infringement of the Articles of Association or of the CPR

In addition, offences can also be committed against legal provisions, such as against the company's own articles of association or against the Companies and Associations Act (WVV). These offences can be committed against the company, but also against third parties. Acting outside the statutory purpose, or failing to file the annual accounts or filing them late, are the most common infringements.

Wrongful trading

Trying to sail on a sinking ship can also lead to personal liability. Read: the hopeless continuation of a lost activity, piling up losses, moreover, without a recovery plan or measures.

The most efficient way to protect yourself against director's liability is to have a D&O Insurance. This protects your private assets. Moreover, within the limits of such an insurance, there is usually also coverage for (criminal) defense against the claims made.

The policyholder is the company of which someone is a director, but the insured parties are always the directors themselves. These can be natural persons, former or future directors, but also a legal person in the form of a management company.

However, the insurance cannot be taken out from that management company. The D&O insurance always protects the private assets of the directors. This relates to mistakes made within the director's office, irrespective of any business activity. Within the guarantees of the BA exploitation, one insures the extra-contractual damage to third parties as a result of the execution of the commercial business activities. Cover under professional indemnity insurance also covers the risks of contractual loss resulting from the exercise of business activity. An important difference.

Source: Vandelanotte