The performance of duties and (internal) liability of the director

As a director, you have an important role within a company. But what exactly does this entail? And what happens if you don’t fulfill that responsibility? In this article we explain it clearly and practically.

What falls under your responsibility?

The law states that as a director you must perform your duties with care. Anything not specifically assigned to someone else by law or bylaws automatically falls under your responsibility. In addition, you are jointly responsible for the general affairs of the company.

What if a director makes mistakes?

If a director does not perform his duties properly, it can be called “careless management.” Whether this is the case depends on the situation. This includes the following points:

What could be expected of you in the specific circumstances?
What information did you have, or should you have had, at your disposal?
What agreements were there within the board, for example about division of labor?
What kind of activities does the company perform?
A director can only be held liable if he or she can be blamed seriously.

How does internal liability work?

If you act seriously culpable as a director, the company (or in bankruptcy: the trustee) can hold you liable. In practice, this often happens when new directors hold their predecessors responsible for past mistakes.

As a director, you are basically responsible for everything that goes wrong within the board. There are two exceptions to this:

If you can prove that certain tasks were assigned to others and the problem was beyond your responsibility.
If you made timely efforts to mitigate the consequences of the mistakes.
An example: suppose you become a director after the mistakes have already occurred. Even then, you must take action to minimize the consequences.

Can you limit liability?

You cannot completely exclude internal liability through articles of association or agreements. However, you can request discharge from the shareholders’ meeting. This is a formal approval of your actions over a certain period, usually the past financial year.

However, a discharge does not offer complete protection:

It applies only to matters known to the shareholders at the time.
It does not protect you from claims by third parties outside the company.

Get advice

If there is any doubt about a particular situation or there is a liability issue, please feel free to call us to discuss the situation. Contact one of our lawyers by mail, telephone or fill in the contact form for a free initial consultation. We will be happy to think along with you.