Liabilities of directors

Liabilities on insolvency

If during the course of its management the company goes bankrupt, the directors may incur in liability if the bankruptcy is declared fraudulent or culpable. The crime of fraudulent or culpable bankruptcy is punishable with a penalty of two to eight years' imprisonment.

Last modified 1 Mar 2021

A director (or directors jointly) can be held personally liable for the debts of the company if they allow it to continue trading whilst it is insolvent or insolvency would objectively have been suspected.  There are a limited number of defences, including where:

  • The "safe harbour" regime applies, which provides directors with a safe harbour from civil insolvent trading provisions where they are developing one or more courses of action that are reasonably likely to lead to a better outcome for the company than the immediate appointment, by the company, of an administrator or liquidator.
  • The director can prove he or she took reasonable steps to prevent the company incurring the debt.
  • The director had reasonable grounds to expect, and did expect, the company to be solvent when the debt was incurred.
  • The director received adequate information as to the solvency of the company from a competent and reliable person fulfilling the responsibility to provide such information, had reason to believe that person and did believe the company was solvent and would remain solvent when the debt was incurred.
  • The director was not taking part in the management of the company due to illness or some other good reason when the company traded insolvent.
  • The director acted honestly and reasonably in the circumstances when the company traded insolvent.

Last modified 8 Feb 2021

Additional personal liabilities may arise for directors if the company is insolvent or nearing insolvency.  Directors who knowingly or negligently allow a company to carry on trading when it is insolvent may be held liable for fraudulent or wrongful trading.  These expose the director to liability to contribute to the company's assets on a winding up and, in the case of fraudulent trading, to criminal penalties.  Liability for wrongful trading can be avoided if the director can satisfy the court that they took every step they ought to have taken to minimise the loss to creditors.  In practice, this may limit the director's ability to resign when the company is insolvent or nearing insolvency.

Last modified 8 Feb 2021

In addition to the general liabilities of directors, specific liabilities may arise if the company is insolvent or nearing insolvency. More particularly, a director (both former and current, including a de facto director) may, inter alia, incur liability for:

  • Failure to comply with the obligation to file for bankruptcy/judicial reorganisation within one month of the cessation of payments where it satisfies the conditions for bankruptcy (i.e. the company has stopped paying debts as they fall due and it no longer has access to credit).
  • The insufficiency of the company's assets/unpaid debts if it is demonstrated that a manifestly serious mistake on his/her part has contributed to the bankruptcy of the company.
  • The insufficiency of the company's assets (debts surpass the income) in the case of wrongful trading, i.e. where the director knew or should have known, at any time prior to the bankruptcy, that the company had no reasonable prospect of avoiding a bankruptcy, and has not acted in accordance with how a reasonable prudent director would have acted in the same circumstances. If these cumulative conditions apply, the director may be held personally (and jointly and severally) liable to pay the whole or part of the deficit to the company’s estate. A claim can however solely be initiated by the curator.

It is sufficient that the error contributed to the bankruptcy. It is up to the courts to decide whether or not such directors will be held severally liable and the portion of the existing liabilities they will have to bear.

Last modified 8 Feb 2021

A director has a duty to engage into contracts on behalf of the company which the company can fulfil its obligations. Thus, a director of a company who is knowingly party to the contracting of a debt by the company and had, at the time the debt was contracted, no reasonable or probable expectation, that the company would be able to pay the debt, shall, on the application of the liquidator or of the creditor concerned in the winding up of the company, be liable for the whole or any part of any loss suffered by the creditor to whom the debt was incurred.

Last modified 1 Mar 2021

As a general rule, directors are not responsible for the company's insolvency if they have acted in compliance with all their duties. This is an application of the business judgement rule recognised by the courts.

However, directors must not:

  • Induce managers, senior executives, account inspectors or external auditors and risk rating agencies, to render irregular accounts, present false information or conceal information.
  • Present to shareholders irregular accounts, present false information or conceal essential information.
  • Borrow the company's money or property or use them for personal or other person's benefit.

In addition, the Corporations Act presumes the directors will be jointly and severally liable for the damages caused to the company, its shareholders and third-parties if:

  • The company does not keep books or registries.
  • Provisory dividends are distributed and the company has accumulated losses (those directors that approved the distribution will be liable).
  • The company conceals its goods or property, or it recognises presumed debt or simulates the sale of goods and properties, amongst other things.

 There are other considerations in other legal bodies, such as the Bankruptcy Law.

Last modified 5 Apr 2021

See What are directors’ other key obligations?

Last modified 8 Feb 2021

The board of directors must continuously assess if it is reasonable to carry on the operation of the company. If this is not the case, the directors must file an application for dissolution, restructuring or bankruptcy on behalf of the company. Thus, directors may be held liable under certain circumstances if an application for restructuring or bankruptcy has not been filed in a timely way.

Last modified 8 Feb 2021

Additional personal liabilities may arise for directors if the company is insolvent or nearing insolvency. 

If the board of directors notices that the company has negative equity, the board must promptly make a register notification to the Trade Register on the loss of share capital. If this notification is not made, the members may be liable for damages caused to the creditors.

Certain actions to diminish assets or increase liabilities or favour certain creditors in case of insolvency are criminal offences and could also cause liability for damages.

Last modified 8 Feb 2021

  • Liability for the company’s debts (action en comblement de passif). The director of a company facing an asset deficiency (insuffisance d’actif), in the context of insolvency proceedings, may be held personally liable for the debts of the company if their actions, in breach of the director's powers, have led to the asset deficiency. The director may only be held liable in such context if they have committed a management fault (faute de gestion) which led to the assets shortfall. In this case, there is no potential relief.
  • Deliberately causing the insolvency of a company (banqueroute). A director may be held personally liable where the director has:
    • Made purchases with a view of reselling at a lower price, or used destructive means in order to receive funds, with an intention to avoid or delay the opening of receivership of the company.
    • Misappropriated or concealed all or part of the assets of the company.
    • Fraudulently increased the liabilities of the company.
    • Falsified the accounts or removed accounting documents of the company.
    • Failed to keep accounts in accordance with legal regulations (including manifestly incomplete accounts).

Last modified 8 Feb 2021

In addition to the liabilities set out in Breach of general duties, the following applies:

  • In the event of technical/existing insolvency, i.e. in the event of over-indebtedness or inability to pay due debts of the company (illiquidity) – the managing director is obliged to submit an application for the initiation of insolvency proceedings within three weeks. If a managing director fails to do so, they are subject to sanctions under criminal law.
  • If the managing director continues to make payments after the technical/existing insolvency of the company, they are personally liable vis-à-vis the company for such payments unless the technical/existing insolvency was not identifiable for a prudent managing director.
  • The same applies to payments that were rendered to the shareholders and have led to the insolvency of the company. This, however, conflicts with the requirement to pay taxes and statutory social insurance contributions for employees. Thus, the German Federal Court (Bundesgerichtshof) decided that such contributions may still be made after having reached the status of a technical/existing insolvency.

Last modified 8 Feb 2021

If the company is of doubtful solvency or on the verge of insolvency or is insolvent, there is an obligation on the directors to take into consideration the interests of the company’s creditors when they discharge their duties as directors.

In the course of the winding up of a company, the potential civil liabilities that may arise include:

  • If in the course of the winding up, it appears that any persons were knowingly a party to business being carried on with the intention of defrauding creditors or for any fraudulent purpose, such persons can be made personally liable to make contributions to the assets of the company. A director is not allowed to incur further credit for the company when knowing there is no reasonable prospect of avoiding the company’s insolvency.
  • If it appears that any past or present officer of the company (i.e. including a director) has misapplied or retained, or become liable or accountable for, any money or property of the company, or is guilty of a misfeasance or breach of duty in relation to the company, the court has the power to order the director to repay or restore the money or property or any part thereof with interest, or to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance, or breach of trust as the court thinks just.

Potential criminal liability in the course of winding up include:

  • If any officer of a company, which is subsequently wound up:
    • has made or caused to be made any gift or transfer of or charge on, or has caused or connived at the levying of any execution against, the property of the company; or
    • has concealed or removed any part of the property of the company since, or within 2 months before, the date of any unsatisfied judgment or order for payment of money obtained against the company,

with intent to defraud creditors of the company, such officer will be guilty of an offence and is liable to a fine and imprisonment.

  • If any officer carried on the business of a company with intent to defraud creditors and misfeasance, in addition to the civil liabilities, such persons can also be subject to criminal liabilities including imprisonment and a fine.

Apart from the above, there are also a number of offences that could be committed by past or present officers of the company (such as falsifying records, concealing debts or not cooperating with the liquidator) in the course of or during the period of 12 months prior to winding up of the company.

Last modified 8 Feb 2021

Focusing on officer liability in the context of bankruptcy and liquidation proceedings, Hungarian law prohibits “wrongful trading” by directors. This involves two stages as follows:

  • Establishment of liability. Any creditor or - in the debtor’s name - the liquidator may bring an action during the insolvent liquidation procedure of a company to establish that a person who had been a director of the company within the three year period prior to the opening of liquidation procedure failed to exercise his duties in the interest of the creditors after the threat of insolvency of the company had arisen and as a result of such failure the company’s assets have diminished or satisfaction of the creditors’ claims have been frustrated for other reasons. For the purpose of the foregoing, amongst others, non-compliance with the rules on the protection of the environment is also considered as a failure to take into account the creditors’ interest. The court may not establish the director’s liability if he can prove that following when the threat of insolvency of the company had arisen he did not take any business risks that could be considered unreasonable in the light of the company’s financial position and that he took all steps that can be reasonably expected from a director to mitigate the losses of creditors , including by the initiating the actions of the general meeting.
  • Claim for unsatisfied losses. Within 90 days following the publication of the court’s resolution on the conclusion of insolvent liquidation of the company in the Company Gazette, any creditor may bring an action for ordering the (former) directors of the liquidated company whose liability was established in the course of the insolvency procedure (as set out above), for satisfying its claim registered in the liquidation proceedings that has remained unsatisfied (up to the loss resulting from the wrongful trading).

The above rules also apply if the court of registration strikes off a company from the company register in any involuntary deregistration procedure (kényszertörlési eljárás), i.e. not in an insolvent liquidation procedure. An involuntary deregistration procedure (kényszertörlési eljárás) is pursued by the court of registration if the company’s operation is not in compliance with the applicable laws and such compliance is not remedied despite the measures of the court of registrations imposed on the company.

Last modified 8 Feb 2021

Additional personal liabilities may arise for directors if the company is insolvent or nearing insolvency.  Directors who knowingly or negligently allow a company to carry on trading when it is insolvent may be held liable for fraudulent or reckless trading.  These expose the director to liability to contribute to the company's assets on a winding up and, in the case of fraudulent trading, to criminal penalties.  Liability for reckless trading can be avoided if the director can satisfy the court that they took every step they ought to have taken to minimise the loss to creditors.  In practice, this may limit the director's ability to resign when the company is insolvent or nearing insolvency.

Last modified 8 Feb 2021

Additional personal liabilities may arise for directors if the company is insolvent or nearing insolvency. 

Directors have criminal liability if they commit offences during either:

  • Ongoing insolvency proceedings.
  • The period before a company is declared insolvent, under certain specific circumstances.

The main insolvency crimes include:

  • Bankruptcy (bancarotta semplice).
  • Fraudulent bankruptcy (bancarotta fraudolenta).
  • Illegal applications for loans (ricorso abusivo al credito).
  • Declaration of non-existing creditors (denuncia di creditori insesistenti).

In case of bankruptcy or other “procedura concorsuale” the actions for liability are filed by the “curatore fallimentare, commissario liquidatore or commissario straordinario”. The actions for liability owed to the company  and owed to the creditors  converge in a unitary action, filed by the official receiver, . Accordingly, the creditors lose the right to sue the director directly.

In that case, the director’s liability to the company creditors is of an extra contractual nature and arises when the director does not comply with  duties concerning the preservation of the capital stock integrity and the action can be filed only when such stock capital is insufficient to pay off their debts. The requirements to bring an action against the director are:

  • Their unlawful conduct (contrary to the duties established by the law or by the by-laws).
  • A prejudice for the creditors represented by the insufficiency of the stock capital in order to satisfy their debts (and the insufficiency does not mean insolvency: there can be insolvency when there is not liquidity, but the assets could however be sufficient).
  • A causal nexus between the prejudice and the conduct.

The Italian Civil Code imposes on directors of all types of business that act as corporations or in collective form a duty to take the necessary steps to adopt an organizational, administrative and accounting structure that is adequate given the nature and size of the company, to promptly detect a situation of crisis and the loss of going concern status and to  adopt and implement without delay those instruments provided by the regulations to overcome the state of crisis and restore the company as a going concern.

Alongside this innovative duty to monitor the evolution of financial dynamics from the perspective of the company’s going concern status, the law also sets out a more traditional duty to verify the static situation of the corporate assets, with aggravated liability deriving from requirements for the directors to limit management solely to the conservation of the company’s assets after the occurrence of a cause of dissolution (including the erosion of net equity for losses not followed by recapitalization: so called “recapitalize or liquid rule”).

Last modified 8 Feb 2021

There is no special liability caused by an insolvency of the company. However, as described above, a third-party creditor may be able to bring an indemnity claim against a director who acted in bad faith or gross negligence.

Last modified 8 Feb 2021

Additional personal liabilities may arise for directors if the company is insolvent or nearing insolvency. Directors who knowingly or negligently allow a company to carry on trading when it is insolvent may be held liable for fraudulent or wrongful trading. These expose the director to liability to contribute to the company's assets on a winding up and, in the case of fraudulent trading, to criminal penalties. Liability for wrongful trading can be avoided if the director can satisfy the court that they took every step they ought to have taken to minimise the loss to creditors. In practice, this may limit the director's ability to resign when the company is insolvent or nearing insolvency.

Last modified 16 Jun 2021

Under the Luxembourg Commercial Code, in case of bankruptcy, managers can be held liable based on their serious and characterized misconduct or if they conduct the business in their personal interest. 

In that case, managers may be subject to claims based on additional liability grounds. The company’s bankruptcy may be extended to any legal or de facto manager who acting under the corporate veil, has entered into commercial transactions for his own account; has benefited or disposed of the company’s assets as if they were his own; or has pursued a loss making business activity which was predestined to lead to bankruptcy, in his own interest and in an abusive manner.

A court may ban from office any manager who has committed serious offences or breaches of duty which have contributed to a Company's bankruptcy.

Last modified 8 Feb 2021

There are criminal liabilities for those who supply false information to commit fraud before, during and after an insolvency process, and the penalty will depend on, among other things, the amount involved.

Last modified 19 Aug 2021

As a general principle, directors will not be held liable for the (inevitable) risks of entrepreneurship (ondernemersrisico). However, if a company is declared bankrupt, the directors are personally liable for the deficit in bankruptcy if the bankruptcy is caused by their apparent negligence (kennelijke onbehoorlijke taakvervulling) to a significant extent during a period of three years prior to the date of bankruptcy. The burden to prove that the decisions which lead to the miscalculation, financial setback or disappointing investments were taken with proper caution lies with the respective director(s).

Under Dutch law the board is obliged to keep financial records in such a way that all assets and liabilities of the company can be determined at any time and that the annual accounts and other financial information are duly filed with the trade register of the Dutch Chamber of Commerce. If one of these obligations has not been fulfilled, two statutory presumptions apply:

  • An irrebuttable presumption (niet weerlegbaar vermoeden) that there has been apparent negligence.
  • A rebuttable presumption (weerlegbaar vermoeden) that the apparent negligence is a significant cause of the bankruptcy.

In the event that a director will be considered to have evidently improperly performed their duties which will be regarded as a significant cause of the bankruptcy, each director can consequently be held jointly and severally liable for the shortfalls in the estate of a bankrupt company.

An individual director can only avoid liability if they are able to prove that:

  • They have not been negligent (nalatig) as far as the improper management is concerned.
  • They have not been negligent in taking measures to prevent the consequences of improper management. 

A claim on this basis can solely be instituted against the director(s) by the trustee in the bankruptcy (curator) on behalf of the collective creditors. Only improper management in the three year period prior to bankruptcy can serve as a basis for such a claim. The Dutch court has the authority to reduce the amount for which directors are liable on a collective or individual basis. 

Dutch law imposes liability in the event of bankruptcy of the company not only on directors, but also on policy-makers (feitelijke beleidsbepaler). Such a policy-maker may be held personally liable for the deficit in bankruptcy as if they were a director of the company.

Last modified 8 Feb 2021

Directors may be held personally liable for fraudulent or wrongful trading if the company is solvent or nearing insolvency.

If, in the course of the winding-up of a company, it appears that the business of the company has been carried on in a reckless manner, or for any fraudulent purpose,  the directors who knowingly allowed it may be held personally responsible for the liabilities of the company, without any limitation of liability. In the case of fraud, the director commits an offence, and is liable on conviction to a fine or to imprisonment for a term of two years or both. Liability may however be avoided if the directors can show that they took every step they possibly could to minimise the potential loss to the company’s creditors.

Where a director makes a statutory declaration of solvency where he has no reasonable grounds for making the declaration, if convicted, the director will be liable to a fine in addition to imprisonment for a term of three months.

If the company has gone into insolvent liquidation and at some time before the commencement of the winding-up of the company, the directors knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation, they may be held liable to make any necessary contribution to the company’s assets.

Last modified 1 Mar 2021

It is the responsibility of the board of directors to submit any petition for debt negotiations or bankruptcy proceedings in relation to the company. The board of directors represent the company as bankruptcy debtor in bankruptcy proceedings. Directors who knowingly or negligently allow a company to carry on trading when it is insolvent may be held liable for fraudulent or wrongful trading.

Last modified 16 Jun 2021

If, when preparing the latest annual financial statements of the company, or a lesser period, the loss of half or more than a half of the capital has occurred, or shall be presumed, the board must immediately call a shareholders' meeting to inform them about the financial situation of the company.

When assets of the company are not sufficient to meet its liabilities, the board must, within no more than 15 calendar days of such occurrence, call the creditors and request, if applicable, the insolvency of the company.

If a company has losses that reduce its net assets (patrimonio neto) to an amount which is less than one third of the capital stock of the company, without this position being regularised by shareholders, this is a cause for dissolution of the company according to law.

If the company continues doing business despite having incurred a cause for dissolution, the company becomes irregular. In such case, directors (as well as managers and any other representatives and attorneys, duly appointed or de facto) will be personally liable for the acts executed by them in representation of the company since the irregularity occurred.

Last modified 26 Jul 2021

Additional personal liabilities may arise for directors if the company is insolvent or nearing insolvency. As a general statutory rule, if enforcement proceedings against the company prove ineffective, the management board members are jointly and severally liable for the company's liabilities. However, a management board member may be discharged from such liability if they prove that:

  • A petition in bankruptcy was filed on time.
  • At the same time, an order was issued to open restructuring proceedings or to approve an arrangement in proceedings regarding approval of an arrangement.
  • The failure to file a petition in bankruptcy occurred through no fault on their part.
  • Despite the failure to file a petition in bankruptcy or to approve an arrangement in proceedings regarding approval of an arrangement, no creditor suffered damage.

Last modified 8 Feb 2021

After insolvency is declared by a Court of Law a specific procedure called “Qualification of the Insolvency” may be opened in order to qualify, or not, the insolvency as intentional. Insolvency is deemed to be intentional when it is considered to be the result of intentional or negligent conduct by the insolvent company or its directors. In the event that a Court of Law decides to qualify the insolvency as intentional, directors that have been proven to have acted intentionally or with negligence, may be disqualified for carrying on business activities during a defined timeframe, up to a maximum of ten years.

The financial consequences that may arise for the company’s directors in cases of proven intentional insolvency are the following:

  • Loss of any credits (including labour related credits) that these directors may have over the company.
  • Restitution of the assets or rights that they may have already received as payment for those credits.
  • Joint payment of unsatisfied credits up to the limit of their own personal assets.

Additionally, please note that the directors may be held personally liable from a criminal perspective for intentional insolvency, if there is evidence of fraud or intentional misconduct, as a result of acts or omissions, that decrease, compromise, make difficult, endanger or delay the satisfaction of creditors and that may have directly caused the company’s insolvency status. If the directors are found guilty of such a criminal offence of faulty insolvency or faulty management, they may also become civilly liable for the damages arising out of their criminal actions or omissions.

Last modified 8 Feb 2021

Law no. 85/2014 on insolvency proceedings (Insolvency Law) extends liability for part of the uncovered debts of the insolvent company to the members of the management bodies and any other person to which the company's insolvency may be imputed to the extent they performed certain unlawful actions, such as:

  • Using the company’s assets or credit in their own benefit or that of another person.
  • The decision (in their own interest) to continue an activity which has the evident result of the company’s insolvency.
  • Maintaining fictitious accounting documents, deleting or disposing of accounting documents or not keeping the accounting books and records according to the law.
  • Using ruinous methods to obtain funds, in order to delay the insolvency etc..

The Romanian Criminal Code provides that the failure of the legal representative of an insolvent company to file for insolvency within six months after the onset of insolvency is punishable by imprisonment ranging from three months to one year or a fine. In addition, the Romanian Criminal Code provides that the person who, to the detriment of the creditors, counterfeits, takes away or destroys the debtor’s documents, hides a part of its assets or, in case of insolvency, sells part of the debtor’s assets, is punishable by imprisonment ranging from six months to five years.

Last modified 8 Feb 2021

The Director or controlling person (who has the authority to give binding instructions or otherwise determine the decisions of the company, such as a participant for example) may be held liable in the following cases:

  • The company's inability to pay the creditors' claims in full.
  • The failure to convene a meeting for filing a bankruptcy application or the failure to file (or delay in filing) a bankruptcy application.
  • Other violations of the bankruptcy law's requirements.

In general, BoD members are not liable under bankruptcy law. The key difference between the liability of the Director and members of the BoD is that the Director (unlike the BoD) is a controlling person of the company, who has the actual ability to give the company binding instructions or otherwise determine its actions. Therefore, liability in bankruptcy cases is more likely to be attributable to the Director, rather than members of the BoD. Further, the Director is the person who actually has to file for bankruptcy in certain cases and there is a corresponding liability for not doing so.

Each member of the BoD shall exercise their authority "reasonably and in good faith". Members of the BoD shall be liable to the company for losses caused to the company by their guilty actions (or inaction). At the same time, members of the BoD, who voted against the decision that caused damage to the company, or who did not participate in the voting, are not liable. The company or its participant can apply to the court with a claim for compensation for losses caused to the company by a member of the BoD.

Under the Criminal Code, members of the BoD bear criminal liability for theft, fraud and bribery, including commercial bribery.

Last modified 8 Feb 2021

Directors are under a duty to take into account the interests of the company’s creditors when the company is insolvent or nearly insolvent. It is advisable for directors to seek personal professional advice to avoid taking actions increasing his / her liability exposure to the company’s creditors.

Directors may be personally liable for the payment of debts if he or she knew, or ought to have known in all the circumstances that the company was trading wrongfully / fraudulently under sections 238 and 239 of the Insolvency, Restructuring and Dissolution Act 2018. Liability for wrongful trading can be avoided if the director can satisfy the court that: he/she had acted honestly; and that having regard to all the circumstances of the case, the director ought fairly to be relieved from personal liability. In practice, this may limit the director's ability to resign when the company is insolvent or nearing insolvency. Although the wrongful trading offence was suspended temporarily in response to the Covid-19 pandemic (under the COVID-19 (Temporary Measures) Act 2020), directors may still be liable for fraudulent trading and may also be liable to be disqualified (see Other key risks).

Last modified 8 Feb 2021

Directors who knowingly or negligently allow a company to carry on trading when it is insolvent may be held liable for fraudulent or reckless trading.   This may result in criminal liability (including the possibility of a fine or imprisonment) as well as personal civil liability for any loss incurred by any other person as a result of such reckless trading.

Last modified 19 Apr 2021

Directors' liability may also exist in case of insolvency proceedings of the company, and becomes particularly serious if the insolvency is classified by the judge as “guilty of fraud” (concurso culpable), which means that the insolvency was caused or aggravated by the wilful misconduct (dolo) or gross negligence (negligencia grave) of the company’s directors (including de facto directors). In this case, the directors may be declared liable for the damages caused, and it could lead, under certain circumstances, to them being responsible for covering the shortfall in assets.

Last modified 8 Feb 2021

Additional personal liabilities may arise for directors if the company is insolvent or nearing insolvency. Directors who knowingly or negligently allow a company to carry on trading when it is insolvent may be held liable for fraudulent or wrongful trading. These expose the director to liability to contribute to the company's assets on a winding up and, in the case of fraudulent trading, to criminal penalties. 

Personal liabilities can be avoided if the director is able to show that he or she took every step he or she ought to have taken in accordance with the requirements imposed by the Swedish Companies Act, including the preparation of a balance sheet for liquidation purposes and convening a first and a second general meeting for liquidation purposes. See further the section "What are the key general duties of directors".

Last modified 8 Feb 2021

Additional personal liabilities may arise for directors if the company is insolvent or nearing insolvency.  Directors who knowingly or negligently allow a company to carry on trading when it is insolvent may be held liable for fraudulent or wrongful trading.  These expose the director to liability to contribute to the company's assets on a winding up and, in the case of fraudulent trading, to criminal penalties.  Liability for wrongful trading can be avoided if the director can satisfy the court that they took every step they ought to have taken to minimise the loss to creditors.  In practice, this may limit the director's ability to resign when the company is insolvent or nearing insolvency.

Last modified 1 Mar 2021

Onshore UAE

On insolvency, a director may face potential civil liability where an LLC's funds are insufficient to repay 20% of creditor liabilities. The court may order the manager to contribute to the company's losses and the court has wide discretion in relation to the terms of the order the director to contribute to the LLC's losses.

With regard to events leading to insolvency, a potential criminal liability may arise and directors may face up to five years imprisonment and a fine amounting to AED1,000,000 where they engage in any of the following acts:

  • Hid all or some of the company's books and records, or destroyed or amended those books and records with the intent to cause prejudice to the creditors.
  • Embezzled or concealed any part of the company's assets.
  • Declared/acknowledged debts that were not due from the company while being aware of that fact, whether the declaration was in writing, verbally or in the accounts or they refrained from submitting evidence or clarifications while being aware of the outcome of such inactions.
  • Obtained preventive composition or restructuring (within the meanings of the Bankruptcy Law) for the company by way of fraud.
  • Made false declarations concerning the subscribed or paid-up capital, distributed fictitious profits or seized bonuses exceeding the amount set out in the law, the company's memorandum of association or articles of association.

Dubai International Financial Centre

Additional personal liabilities may arise for directors if the company is insolvent or nearing insolvency.  Directors who knowingly or negligently allow a company to carry on trading when it is insolvent may be held liable for fraudulent or wrongful trading. These expose the director to liability to contribute to the company's assets on a winding up and, in the case of fraudulent trading, to criminal penalties. Liability for wrongful trading can be avoided if the director can satisfy the court that they took every step they ought to have taken to minimise the loss to creditors. In practice, this may limit the director's ability to resign when the company is insolvent or nearing insolvency.

Last modified 8 Feb 2021

Additional personal liabilities may arise for directors if the company is insolvent or nearing insolvency.  Directors who knowingly or negligently allow a company to carry on trading when it is insolvent may be held liable for fraudulent or wrongful trading.  These expose the director to liability to contribute to the company's assets on a winding up and, in the case of fraudulent trading, to criminal penalties.  Liability for wrongful trading can be avoided if the director can satisfy the court that they took every step they ought to have taken to minimise the loss to creditors.  In practice, this may limit the director's ability to resign when the company is insolvent or nearing insolvency. Although the wrongful trading offence has been suspended temporarily in response to the Covid-19 pandemic, directors may still be liable for fraudulent trading and may also be liable to be disqualified (see Other key risks).

Last modified 8 Feb 2021

While directors have no direct fiduciary duties to a company’s creditors, when a company becomes insolvent, its creditors, as the residual beneficiaries of the company, are authorized to sue the company’s directors derivatively for breach of fiduciary duty.  Employees may also sue directors for unpaid wages in certain states.

Last modified 8 Feb 2021

The executive body must convene a general meeting of the shareholders if the net value of the company’s assets has decreased by more than 50% in comparison to the previous year. If the executive body fails to convene the general meeting and the company is declared bankrupt within a three-year period following the date of such net assets decrease, the members of the executive body shall jointly bear subsidiary liability for the company’s obligations.

Those members of the executive body who prove their unawareness of the net assets decrease or those who voted to convene the general meeting of shareholders shall be exempt from liability.

Last modified 8 Feb 2021

In terms of the Insolvency Act, additional personal liabilities may arise for directors if the company is insolvent or nearing insolvency. 

Directors or managers who knowingly or negligently allow a company to carry on trading when it is insolvent may be held liable by a court.  This exposes the director to liability to contribute to paying off the debt incurred by the company.  

Liability for insolvent trading can be avoided if the director can satisfy the court that they had no knowledge of the transaction and that they did not participate with the handling of the accounts of the company or believed that the debt could be paid off. 

Last modified 19 Apr 2021

Angola

Angola

What type of company is typically used in group structures?

In Angola, the most common type of company used in group structures is the private company limited by shares.  This guide therefore focuses on the management of private limited companies.

Last modified 1 Mar 2021

Angola

Angola

What is a "director"?

There is no complete definition of the term "director" in Angolan law.  Basically, the law regards someone who manages the affairs of a company on behalf of its shareholders as a director.

What are the different types of director?

Directors validly appointed as such, through a shareholders' resolution, may be executive or non-executive.

The executive directors are responsible for the management of the affairs of the company.

The non-executive directors are responsible for the general supervision of the performance of executive directors’ duties.

Last modified 1 Mar 2021

Angola

Angola

Who can be a director?

A director must be at least 18 years old.  In the event of a legal person being appointed as a director, it must appoint an individual to exercise the office in their own name. The legal person must share liability with the person appointed by it.

Foreign directors must hold a work visa, ordinary visa or residency card.

Minimum / maximum number of directors

Under Angolan law there is no maximum number of directors. The company’s articles of association may, however, specify a greater minimum number and/or specify a maximum.

The management of private limited companies is carried out by a board of directors, composed of an odd number of members.

It may be agreed in the articles of association that the management shall be exercised by one single director when:

  • The number of shareholders is only two (which can only happen in cases where the State, public companies or entities legally equivalent to the State hold the majority of the share capital).
  • The share capital does not exceed an amount equivalent, in national currency, to USD50,000.00.

Last modified 1 Mar 2021

Angola

Angola

How are directors appointed?

Directors must be appointed by the company's shareholders (via a shareholders' general meeting or by unanimous written resolution).

A resolution appointing a director must be filed at the company’s registry office.

Directors must be appointed for the period fixed in company’s bylaws, which must not exceed four calendar years with re-appointment being permitted.

How are directors removed?

Any member of the board of directors may be dismissed (either with cause, or without cause) at any time by means of a resolution approved by the company's shareholders (via a shareholders' general meeting or by unanimous written resolution).

A director may also resign at any time through the issuance of a resignation letter addressed to the Chairman of the board of directors, or in case of the resignation of the Chairman, to the company’s audit board or audit committee.

The resignation or the resolution on director’s dismissal must be filed at the commercial registry.

Last modified 1 Mar 2021

Angola

Angola

Typical management structure

Typically, the management of private limited companies is carried out by a board of directors and supervision by a supervisory board, made up of an odd number of members, elected by shareholders at a general meeting.

One of the directors is appointed as Chairman of the board of directors.

How are decisions made by directors?

The manner in which directors can make decisions is set out in the company's bylaws.  In private companies limited by shares, the bylaws typically provide directors with flexibility to determine between themselves how decisions are made – whether by physical meeting, telematic means (provided that the company ensures the authenticity of declarations and the security of communications, registering the content of all interventions) or an unanimous written resolution.

Directors must meet at least once a month, unless otherwise provided in company’s bylaws.

The validity of the resolutions of the board of directors depends on the presence of the majority of its members.

In relation to the minimum quorum, the board of directors must not approve resolutions without the absolute majority of votes of the directors present.

Authority and powers

The board of directors has exclusive and full powers to represent the company.

The powers of representation of the board of directors are performed jointly by the directors.

Acts performed by the directors, on behalf of the company and in the use of the powers conferred upon them by law, shall bind the company before third parties, irrespective of any limitations that may be established by the articles of association or by decisions of shareholders, whether published or not.

Directors shall bind the company if, by affixing their signature, they indicate that intention.

Delegation

Subject to Angolan law restrictions, and unless otherwise provided in the bylaws, the board of directors may delegate powers to one or more directors to deal with certain managing matters. However, the board retains overall responsibility for the company's operations and management.

The board of directors can also appoint attorneys to perform certain acts or categories of acts, without the need for an express contractual clause.

Last modified 1 Mar 2021

Angola

Angola

What are the key general duties of directors?

The key duties of a director are set out in the Angola Companies Law, pursuant to which the director:

  • Must observe a duty of care towards the company, demonstrate capability, technical competence and an understanding of the company's business considered appropriate for the role, and execute its tasks with the diligence of a careful and earnest manager.
  • Must observe a duty of loyalty towards the interests of the company, serving the long term collective interests of the shareholders and taking into consideration the interests of other stakeholders such as employees, clients and creditors by ensuring the sustainability of the company. As a specific realization of this duty, the directors must not pursue or develop, directly or indirectly, other activities in direct competition with the company, unless duly authorized by the general meeting of shareholders.
  • Must carry out any acts deemed necessary or appropriate to achieve the corporate purpose in line with the resolutions adopted by the shareholders, the bylaws and the applicable law.
  • Are responsible for drafting merger and spin-off plans, in addition to other documents required or appropriate for the full legal and economic transparency of the transaction, as well as preparing a report in case of change of the company's legal form (i.e. a change to a different type of company).
  • Are responsible for performing and executing all managing acts not specifically reserved by law or bylaws to the general meeting of shareholders.
  • Are responsible for, following a shareholders resolution (except an unlawful resolution or resolutions that are not compliant with the company's by-laws), taking all necessary measures to execute such resolution, as promptly as possible (namely resolutions making any amendments to the company’s bylaws).

In addition, if agreed by the shareholders and set out in the company’s bylaws, the directors must also decide on and implement:

  • The acquisition, disposal and encumbrance of real estate of the company.
  • The disposal, encumbrance and lease of the business establishment of the company.
  • The subscription or acquisition of other companies' shares or the disposal and/or encumbrance of these shares.
  • The establishment of subsidiaries, agencies, branches or other local forms of representation of the company.

In general, the directors are bound to manage a company in a professional and diligent way, which includes compliance with all legal, statutory and contractual requirements.

What are directors' other key obligations?

The directors are responsible for preparing the annual reports and accounts and other financial statements required by law in respect of each financial year, and must submit them to the general meeting of shareholders and supervisory board, within three months from the end of each financial year, or within five months for companies that submit consolidated accounts or that use the equity method.

The directors are also responsible of preparing and submitting a proposal for the allocation of profits and/or handling of losses to the shareholders, in respect of each financial year.

Transactions with the company

Whenever there is a conflict of interest between the company and a director, the director shall advise the Chairman of the board of directors and abstain from voting on the resolution concerning that conflict.

The company may only grant loans or credit to directors, make payments on their account, guarantee obligations that they have contracted or make advances to them on account of the respective remuneration, up to the limit of the monthly amount thereof.

Contracts signed between the company and its directors, directly or through another person, shall be null and void except if they have been previously authorised by means of a decision of the board of directors, in which the director concerned may not participate, and if they have obtained the favourable opinion of the supervisory board.

Last modified 1 Mar 2021

Angola

Angola

Breach of general duties

Directors are severally liable towards the company for the damages caused to the company as a result of their actions or omissions that are not compliant with their legal statutory or contractual obligations, unless they prove that their actions/omissions were not caused with intentional or negligent misconduct.

The directors may also be subject to criminal liability.

A lawsuit against the directors may be brought by:

  • The company – in this case a shareholder’s resolution to bring the lawsuit must be approved by the majority of the shareholders, and the lawsuit must be sought within six months from the date of such resolution.
  • In the absence of a lawsuit sought by the company, one or more shareholders who jointly own, at least, 10% of the share capital  may bring a liability suit against the directors to claim reparation for damages caused to the company.

A company may seek a range of remedies against a director for breach of duty including damages, recovery of misapplied property, accounting for profit made in breach of duty, an injunction to prevent breach and rescission of a contract.

Liabilities on insolvency

If during the course of its management the company goes bankrupt, the directors may incur in liability if the bankruptcy is declared fraudulent or culpable. The crime of fraudulent or culpable bankruptcy is punishable with a penalty of two to eight years' imprisonment.

Other key risks

Personal liability for directors may, in certain circumstances, arise under Angolan legislation including that relating to environmental and health and safety, employment, consumer protection and bribery/anti-corruption.  In certain cases, criminal liability may arise.

A director may also be disqualified by the court from acting as a director or from taking part in the promotion, formation or management of a company.  A disqualification order can be made for a variety of reasons (e.g. conviction for criminal offences relating to the running of a company, persistent breaches of statutory obligations such as filing documents with the companies register, being found liable for fraudulent or wrongful trading and generally for conduct which makes a director unfit to manage a company).

Last modified 1 Mar 2021

Angola

Angola

How can directors be protected from liability?

The board of directors or the shareholders' general meeting may declare null and void or annul defective resolutions, at the request of any director, shareholder with the right to vote or of the supervisory board, made within one year of becoming aware of the defect that serves as its basis.

The general meeting of shareholders may ratify any resolution or substitute an invalid resolution if it does not concern a matter that falls within the exclusive competence of the board of directors.

Directors shall not execute or allow to be executed resolutions of the board of directors that are null and void.

Directors' and officers' (D&O) insurance is also available. It typically provides both cover for individual directors against claims made against them in their capacity as director, including defence costs (which applies when indemnification by the company is not available), and company reimbursement when it has indemnified its directors (subject to an excess/retention). Policy exclusions typically include claims in respect of a director's fraud, dishonesty, wilful default or criminal behaviour.

What practical steps can directors take to avoid liability?

Directors should:

  • Keep informed about the affairs of the company, particularly its financial position, and compliance obligations. Directors should have access to up to date financial information, prepare thoroughly for and regularly attend board meetings and familiarise themselves with key legislation affecting the business.
  • Make full disclosures to the board and shareholders if they have outside positions or interests which may give rise to a conflict of interest and/or if they have a personal interest in any proposed or existing transaction or arrangement with the company.
  • Keep records and take advice – directors should ensure that full written records of board proceedings are made reflecting the reasoning behind key decisions. This should include any alternative courses of action considered. Minutes should also record any disagreement amongst the board and the reasons for that. In addition, directors should ensure that returns and accounts and filed promptly and take professional advice for decisions based on areas outside their personal expertise, for example from legal professionals and accountants.
  • Be aware of, and comply with, any group-wide governance policies. These may cover areas such as health and safety, ethics, bribery/anti-corruption, and human rights. Compliance with them is designed to help directors (and employees) fulfil their duties and obligations and minimise the risk of liability.
  • Act, not only with diligence, but also with loyalty, keeping in mind that they must act always in the interest of the company, taking into account the long-term interests of the shareholders and considering the interests of other subjects relevant to the sustainability of the company, such as its workers, customers and creditors.
  • Also in a group situation, directors should keep in mind that thet must act in the best interest of their group company. Whilst group interests and that company's interests are usually aligned, this may not always be the case (e.g. when their group company's solvency is adversely impacted).  It is important to keep communication and reporting lines as open and clear as possible between parent and subsidiary companies when issues may arise and seek appropriate advice.

Last modified 1 Mar 2021