Protection against liability

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.

Last modified 1 Mar 2021

  • Indemnity - Although it is not possible for a company to exempt its directors from liability, a company is able to indemnify its directors against certain liabilities incurred to third parties. This is usually done through an indemnity, insurance and access deed, but may also be provided for in the company's constitution (if it has one).  
  • Insurance - Directors' and officers' insurance is common in Australia.  It typically provides indemnification against costs arising from defending proceedings (civil and criminal). Despite indemnification for legal costs, it cannot provide an indemnity in respect of liability arising from wilful breach of duty to the company or improper use of position or information by a director.
  • Ratification - In limited circumstances, a company’s shareholders can ratify or relax duties owed by directors by passing a resolution at a general meeting.  This essentially authorises what would otherwise be a breach or forgives an existing breach.  Any consent given by members must be informed consent.  Ratification by shareholders does not, however, absolve a director from any liability to a third party in relation to the matter concerned (eg creditors in an insolvency/pre-insolvency situation).

Last modified 8 Feb 2021

  • Ratification. Shareholders can ratify conduct by a director which is negligent or in breach of duty by a majority resolution (excluding the votes of the director concerned or their connected persons).  Ratification by shareholders does not, however, absolve a director from any liability to a third party in relation to the matter concerned (e.g. creditors in an insolvency/pre-insolvency situation).
  • Indemnity. Although it is not possible for a company to exempt its directors from liability, a company is able to indemnify its directors against certain liabilities incurred to third parties. An indemnity can potentially cover both the award of damages against a director and the costs involved in defending a claim but also regulatory fines. However, such an agreement can only be made between the company (represented by the shareholders or the remaining directors) and the respective director after a fine has been imposed or a liability was confirmed by court. Any in-advance agreement on the payment of damages or fines would potentially decrease a director's level of diligence and is therefore void.
  • Insurance. Directors' and officers' (D&O) insurance is not common in Austria for companies with limited liability, only directors of large size companies may have a D&O insurance.  It typically provides both cover for individual directors against claims made against them in 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.

Last modified 8 Feb 2021

The following protection mechanisms exist:

  • Informing board members. A director can avoid joint and several liability (for violations of company law or the articles of association), if certain conditions are met:
    • The board member may not have taken part in the wrongful action (e.g. he voted against the resolution by the board).
    • The board member must have notified the board of directors of his protest against the wrongful action. The notification to the board must be recorded in the minutes of the board meeting.
  • Capped liability. The law provides for a maximum liability for directors who cause damages due to mismanagement. The cap of liability benefits each member of a management organ, a director, or the delegates for day-to-day management. The amount of the cap varies depending on the size of the company and applies as an aggregate for all directors concerned for claims based on the same fact(s) regardless of the number of plaintiffs. The liability cap applies both vis-à-vis the company and third parties, and is irrespective of the ground or basis of the liability claim (contractual or non-contractual).

Importantly, the cap does not apply in case of common minor error, gross misconduct or fraudulent intent; nor in case of the joint and several liability resulting from unpaid withholding taxes, unpaid VAT or unpaid social security contributions in case of bankruptcy of the company.

The company - and its subsidiaries or entities it controls - cannot provide for prior exoneration or further limitation of the directors’ liability against the company or third parties. Any provision in the articles of association or in an agreement in this respect will be deemed null and void. However, exoneration by the parent company is thus considered possible.

  • D&O Insurance. Directors' and officers' (D&O) insurance is often used in Belgium. Policy exclusions typically include claims in respect of a director's fraud, intentional fault or criminal behaviour.
  • Discharge of liability. When the annual accounts are approved, discharge is granted to the directors by the shareholders for the exercise of their directors’ mandate. This discharge is valid only if the annual accounts contain no omission or false indication concealing the real situation of the company and, as regards acts done in violation of the articles of association or company law, only if they have been specifically indicated in the notice convening the general shareholders’ meeting. A valid discharge given by the company covers both liability for lack of due care and liability resulting from the violations of company law and the articles of association.

However, the fact that a company has discharged its directors does not limit claims brought by third parties.

Finally, it should be noted that any action against directors, permanent representatives, or against all other persons who have effectively held the power to manage the company expire after five years for acts committed in the course of their functions, from the day of those acts or, if they have been concealed by fraud, from the discovery of those acts.

Last modified 8 Feb 2021

  • Indemnity and Insurance. Where a director is found personally liable in respect of negligence, default, breach of duty or breach of trust, the company cannot relieve them of their liability. The company cannot give a director a blanket exemption from liability. However, the company may indemnify them against any liability incurred by them in defending any proceedings in which judgement is given in their favour or in which they are acquitted. Unless its constitution provides otherwise, a company may, with the prior approved of the board, effect insurance for an officer or employee of the company in respect of civil liability and costs in civil and criminal proceedings.
  • Ratification. In order for a director or directors to protect themselves from any personal liability for transactions they enter into on behalf of the company, such transactions should be subject to ratification by the board.

Last modified 1 Mar 2021

Director’s liability insurance is a common practice. Corporations can pay the director’s premiums. However, as the director is not an employee of the company, it is highly likely that the Chilean Internal Revenue Service will consider the premium a rejected expense. This means that the company is liable to pay a penalty tax of 40% of the expense amount. To avoid such a penalty, the company must prove before the tax authorities or the tax court that the premium expense was needed to generate the company’s revenues.

There is no constraint on the company indemnifying directors and officers in relation to liabilities incurred in their professional capacity, but this is an uncommon practice. Liabilities that arise from gross negligence or fraud cannot be indemnified, in accordance with civil law.

Last modified 5 Apr 2021

Liability for damage to the company caused by the director violating managerial care is unlimited. It cannot be limited by the articles of association,  management agreement or a contractual arrangement between the company and the director.

In practice, waivers of the company's claims against a member of the statutory body (so-called waiver letter used mainly in the termination of office) are widely used, but given the above inadmissibility of limitation of liability there is a risk of such statements being considered void. These statements may, however, be morally persuasive in preventing the company from enforcing claims against the statutory representative in the future.

Directors' and officers' (D&O) insurance is also common in the Czech Republic.  It typically provides both cover for individual directors against claims made against them in 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).

Last modified 8 Feb 2021

  • Discharge. At the annual general meeting the shareholder(s) may by simple majority decide to discharge the board of directors from liability with respect to events occurred in the past financial year.
  • Indemnification. Members of the board of directors may require that the company or its shareholder(s) hold(s) the director harmless from liability arising out of his/her duties as board member. Proceedings to take legal action may, however, be commenced regardless of any previous decision on discharge or indemnification if the passed resolution was based on inaccurate or incomplete information.
  • Insurance. Companies are also permitted to, and usually do, maintain insurance coverage (i.e. directors and officers liability insurance) for members of the board of directors and executive board in respect of liability to the company.  

Last modified 8 Feb 2021

  • Discharge from liability. Shareholders in an annual general meeting must decide whether to discharge directors from liability. The decision is made by a majority resolution (excluding the votes of the directors concerned or shareholders otherwise benefiting from the decision). Discharge by shareholders does not, however, absolve a director from any liability to a third party in relation to the matter concerned (eg creditors in an insolvency/pre-insolvency situation). Also a derivative claim by shareholders is possible within 3 months from granting the discharge. The discharge is not effective if the general meeting has not been given essentially correct and adequate information about the decision or measure underlying the liability in damages.
  • Limitation of liability. If all the shareholders approve, the articles of association may contain a provision restricting the right of the company to claim damages from the directors. However, certain liability cannot be excluded. In addition, any such provisions cannot restrict the right of a shareholder or a third party to claim damages from the directors. This kind of limitation is in practice quite narrow.
  • Insurance. Directors' and officers' (D&O) insurance is common in the Finland.  It typically provides cover for individual directors against claims made against them in in their capacity as director, including defence costs (subject to an excess/retention).  Policy exclusions typically include claims in respect of a director's fraud, dishonesty, wilful default or criminal behaviour.

Last modified 8 Feb 2021

  • When submitting the annual accounts to the shareholders, the corporate officers can ask for a discharge (quitus) relating to the financial year concerned. Although such a discharge is not recognised under French law, it can make it more difficult for the company to bring an action against its corporate officers for the relevant financial year. The discharge would however have no impact on the corporate officers' liability towards third parties.
  • When the corporate officers have validly delegated their authority to another person, the corporate officers may be exempted from civil, tax and criminal liability, provided the person authorised to act on their behalf had the means, the skills and the appropriate authority to comply with the applicable law and regulations.
  • The shareholders can ratify conduct by a director which is negligent or in breach of duty. However, the ratification by shareholders does not absolve a director from any liability to a third party in relation to the matter concerned.
  • The company may indemnify a director against personal civil (but not criminal) liability arising out of actions occurred in the normal course of the director’s activities for the company. The indemnity agreement shall however not cover situations where the director is held liable for a fault severable from his/her duties, wilful misconduct or fraud or where the action could benefit the company.
  • There are directors liability insurance policies (the fees of which can be paid by the company), the purpose of which is to cover directors against the financial consequences of civil liability claims brought against them in connection with the management of the company. The insurance policy must however expressly exclude any criminal liability and may also exclude other specific risks (e.g. damages claimed by other directors).

Last modified 8 Feb 2021

The company may conclude D&O insurances in favour of the directors.

Last modified 8 Feb 2021

  • Insurance. A company is permitted to purchase and maintain for its directors:
    • Insurance against any liability to the company, a related company, or any other party in respect of any negligence, default, breach of duty, or breach of trust (except fraud) of which such officer may be guilty in relation to the company or related company.
    • Insurance against any liability incurred by such directors in defending any civil or criminal proceedings taken against them for any negligence, default, breach of duty or breach of trust (including fraud) of which they may be guilty in relation to the company or a related company.

The extent of the insurance coverage can only go as far as covering non-fraud related liabilities. Any liabilities incurred due to fraud on the part of the directors will have to be borne by the directors concerned personally.

  • Indemnification. A company is permitted to indemnify its directors against liability incurred by the directors to a third party, provided that the indemnity does not cover certain liabilities and costs, such as criminal fines, penalties imposed by regulatory bodies, the defence costs of criminal proceedings or civil proceedings brought against the directors where they are found guilty or where judgment is given against them. To enhance transparency, a company which provides a permitted indemnity to its directors of the company or of its associated companies must disclose the indemnity in its directors’ report and make it available for inspection by any shareholder on request.
  • Ratification. Shareholders can ratify conduct by a director which is negligent or in breach of duty by a majority resolution (excluding the votes of the director concerned or their connected persons).  Ratification by shareholders does not, however, absolve a director from any liability to a third party in relation to the matter concerned (e.g. creditors in an insolvency/pre-insolvency situation).

Last modified 8 Feb 2021

There are three main methods that may be used to protect the directors from liability to some extent:

  • Contractual limitation of liability. The director’s liability towards his company may be limited in his service agreement with the company (or the articles of association) – in these agreements, indemnity protection can also be agreed for the directors; liability for deliberate breaches of the directors’ duties cannot be lawfully limited; contractual limitation of the directors’ liability is not used widely in practice.
  • Hold-harmless/release certificate (felmentvény). This is issued by the general meeting of the company: in connection with the approval of the annual financial accounts or when removed from office (in between the approval of the annual financial statements), the general meeting may pass a resolution confirming that the director duly performed his duties in the previous financial year. If such certificate is issued, then the company may only make a claim against the director for breach of his duties if it proves that the certificate was issued on the basis of incomplete or false information.
  • Directors’ liability insurance.

Last modified 8 Feb 2021

  • Ratification.  Shareholders can ratify conduct by a director which is negligent or in breach of duty by a majority resolution (excluding the votes of the director concerned or their connected persons).  Ratification by shareholders does not, however, absolve a director from any liability to a third party in relation to the matter concerned (e.g. creditors in an insolvency/pre-insolvency situation).
  • Indemnity. Although it is not possible for a company to exempt its directors from liability, a company is able to indemnify its directors against certain liabilities incurred to third parties.  An indemnity can potentially cover both the award of damages against a director and the costs involved in defending a claim but cannot cover regulatory fines or the unsuccessful defence of, or fines imposed in, criminal proceedings.  The company may also pay a director's defence costs as they are incurred – however these costs become a loan which must be repaid by a director should the defence be unsuccessful and the costs are not covered by any permitted indemnity.  The company may seek to obtain security for such loans if appropriate in order to protect the company's assets.
  • Insurance. Directors' and officers' (D&O) insurance is common in Ireland.  It typically provides both cover for individual directors against claims made against them in 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.

Last modified 8 Feb 2021

Directors may defend themselves from any claim brought against them in the context of an insolvency or reorganisation by demonstrating that they have been acting lawfully. In short, they should try to prove the following:

  • If the claim is brought by the company itself, the directors and officers should demonstrate that they:
    • Fulfilled the duties imposed upon them by the law or the company’s by-laws.
    • Supervised the general conduct of the company
    • Once becoming aware of harmful activities, did what they could do to prevent such activities from being carried out or to limit their negative consequences.

Directors and officers who, lacking any negligent behaviour, had their dissent reported in writing in the book of the meetings and resolutions of the board of directors will not be held liable.

  • If the claim is brought by the company’s creditors, the directors and officers should prove that they complied with their duties to preserve the company’s assets (as above) or alternatively demonstrate that the assets of the company, although reduced also as a result of their actions, are still sufficient to satisfy its creditors.
  • If the claim is brought by single shareholders or third parties directly damaged by the directors’ conduct, directors and officers should demonstrate that they have not acted with wilful misconduct or negligence (or that the five-year prescription term applicable to such extra-contractual liability is elapsed and therefore the action is time-barred).

Indemnification may also be available. The Italian Civil Code, provides that, through a shareholders’ meeting’s resolution, the company is able to waive its right to bring a liability action, unless a minority of shareholders representing at least one fifth of the corporate capital, or the different percentage provided by the company’s by-laws for the exercise of the liability action itself, are opposed to such waiver.

However, historically the Italian courts have been unwilling to uphold liability waiver agreements, although more recent cases suggest that waivers in respect of specific liabilities and actions may be permissible. In light of this, it can be said that a broader view affirming the validity of the waiver agreements in relation to liability actions against directors (for damages caused to third parties) has been increasingly developing.

Directors' and officers' (D&O) insurance is common in the Italian SpAs, while it is quite rare in the Limited Liability Companies (srl).  It typically provides both cover for individual directors against claims made against them in 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  

Last modified 8 Feb 2021

Limitation by shareholders' resolution

Liability of directors to the company can be reduced by a special resolution of a shareholders' meeting whereby such special resolution is passed by a two-thirds majority (or a higher proportion if required by the company's articles of incorporation) of shareholders present at the shareholders' meeting, and who represent more than half (or a proportion of one-third or higher if required by the company's articles of incorporation) of the total voting rights of shareholders entitled to vote at such meetings.

Limitation by the director(s)

Where the company's articles of incorporation expressly provide and if the company has two or more directors and one or more statutory auditor(s), the liability of directors to the company can be reduced by a resolution of the board of directors (or a majority of the directors in case of the company does not have a board of directors), unless shareholders holding three per cent or more (or a lower percentage if prescribed by the company's articles of incorporation) of the total voting rights oppose this action.

Limitation by contract

In the case of non-executive directors, where the company's articles of incorporation expressly provide, the amount of their personal liability to the company can be capped to an extent through contractual agreement.

In each of the above limitations, where the company has a statutory auditor(s), the proposal of such a grant of limitation of liability for a director must be approved by each statutory auditor before the proposal is submitted to the general shareholders' meeting.

Directors liability insurance

Directors liability insurance is available although the Companies Act was amended in December 2019, and will come into effect in March 2021 (Amended Act), to provide that a directors liability insurance contract with the insurance company must be approved at a shareholders' meeting (or, if the company has a board of directors, at a board meeting).

Directors liability insurance usually provides coverage in the event of a claim by a third-party where the director's actions in the course of executing the business of the company resulted in damages to a third party. Director's liability insurance also usually provides coverage for the director's attorney's fees associated with a claim by the company where the director's actions resulted in damages to the company if the director were to successfully defend such claim.

Indemnification agreement with the company

Under the Amended Act, by obtaining the approval from the shareholders' meeting (or, if the company has a board, the board), a director may enter into an indemnification agreement with the company so that they could be indemnified by the company regarding their liability for damage to a third party.

Last modified 8 Feb 2021

  • Ratification. Where a director acts without authority, shareholders may ratify the action in question. Ratification by shareholders does not, however, affect third party claims which can still be lodged against the director but in that case the company would bear the burden of the claim.
  • Indemnity. A company can indemnify its directors against certain liabilities incurred by them in relation to third parties. An indemnity can potentially cover both the award of damages against a director and the costs involved in defending a claim but cannot cover regulatory fines or the unsuccessful defence of, or fines imposed in, criminal proceedings. Indemnities are also not valid where directors are fraudulent, have failed to act in the interest of the company or to exercise due care and skill.
  • Insurance. Directors' and officers' insurance is also available in Kenya. It typically provides both cover for individual directors against claims made against them in their capacity as directors, 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). Insurance policies usually exclude claims in respect of a director's fraud, dishonesty, wilful default or criminal behaviour.

Last modified 16 Jun 2021

Managers may mitigate their liability by:

  • Subscribing to managers’ civil liability insurance covering liability to the company and third parties arising from a management error, a violation of the Luxembourg company law or the company’s articles of association, or in tort.
  • Entering into an indemnity letter which aims to transfer the monetary consequences of managers’ civil liability to the company which enters into them. They are most often used within a group of companies, where the parent company undertakes to indemnify the group's managers for all losses they may bear as a result of their civil liability as managers.
  • Using a legal entity with limited liability as a manager.

The shareholders may reduce the risk that the company may sue the managers for management errors by granting the managers discharge for the exercise of their mandates at the general meeting approving the annual accounts. This has the following consequences:

  • the managers no longer risk facing actions for liability on the basis of decisions taken during that financial year; and
  • the discharge is a waiver by the company of its right to act against the managers for their decisions.

Discharge is only valid if the annual accounts contain no omissions or false information concealing the company's true situation, and if any actions falling outside the scope of the articles of association have been specifically stated in the convening notice.

Last modified 8 Feb 2021

Some actions that can be considered by directors to avoid or reduce their exposure to liabilities are the following:

  • Record contrary votes on resolutions and do not participate in their execution. Directors who have not participated in or who have voted against and who have not taken part in the execution of a decision of management are not liable for damages resulting from it. The contrary vote must be duly recorded in the minutes taken in relation to that decision.
  • No execution of unlawful deliberations. As a general rule, directors are not liable to the company if the act or omission is based on a decision of the shareholders, even if voidable, with the exception of the deliberations that are passed with the conscious purpose of obtaining for a majority shareholder or for a third party undue advantage to the detriment of the company, other shareholders or the company’s creditors, for which in these situations  the director must refuse to execute the decision.
  • Ratification. Ratification may be used in the following circumstances:
    • When the appointed director is a legal person and, in accordance with the Mozambican Commercial Code, indicates a natural person to represent it as a director in the company.
    • When the act or business was conducted only by one director, and the ratification is obtained from the majority of the directors.
    • When the act or business needs approval from the general assembly and a ratification is obtained from this corporate body; or in case of sensitive matters where the approval or ratification is recommended to confirm the director’s decision.

Ratification does not, however, absolve a director from any liability to a third party in relation to the matter concerned. It should be considered on a case by case basis.

  • Indemnity. Although it is not possible for a company to exempt its directors from liability, a company is able to indemnify its directors against certain liabilities incurred in relation to third parties, in particular when the directors have not acted with the intention to omit or violate a duty or have acted within the applicable governance rules.
  • Director and officers (D&O) insurance. This may cover individual directors against claims made against them in their capacity as director, as available.

Last modified 19 Aug 2021

Internal liability: discharge

The general meeting can grant discharge (décharge or kwijting) from liability to the directors for their management conducted during a specific period. Generally, discharge is granted at either:

  • The annual general meeting in which the annual accounts for a financial year are adopted.
  • The end of the director's position as a member of the board by way of a shareholders' resolution. 

Discharge can only be granted for management conducted in the period prior to the resolution granting the discharge was taken, i.e. discharge cannot be forward looking. Discharge can only release a director from liability for management activities to the extent that these appear or may appear from the company's annual accounts or were made known to the general meeting. A director may not invoke discharge as a ground of release from liability if this is in breach of the principle of reasonableness and fairness (redelijkheid en billijkheid), which is assessed on the basis of all relevant circumstances. Discharge is limited to prevention of a director's contractual internal liability towards the company, i.e. it cannot prevent external liability to third parties.

External liability: indemnity

External liability of a director can be covered by an indemnity from the company and may include costs for legal assistance. Furthermore, the general meeting or the company may contractually waive its rights to claim damages from a director (i.e. in relation to liabilities not covered by discharge). Such indemnity will have no have effect if the company is in a state of bankruptcy.

D&O insurance

It is customary in the Netherlands for a company to take out directors and officers liability insurance for its directors, covering both internal and external liability risks.

Last modified 8 Feb 2021

  • Indemnity. A company cannot indemnify a director from liability arising from the breach of any law in relation to the company. Such breaches may include negligence, default, or breach of trust. However, a company may indemnify a director in the form of an advance against legal costs incurred by him in successfully defending legal proceedings. If the director is however not successful, the advance must be repaid to the company.
  • Insurance. Directors' and officers' (D&O) insurance is available in Nigeria.  It typically provides cover for individual directors against claims made against them in their capacity as director (including defence costs) and company reimbursement when it has indemnified its directors. 
  • Ratification. shareholders can ratify or confirm negligent actions taken by directors, or conduct which breach a director’s duty, except where the breach is an illegal or fraudulent. This does not, however, absolve a director from any liability to a third party.

Last modified 1 Mar 2021

The company can take out an directors & officers insurance for the board of directors, which is common in Norway. Usually this insurance is taken out for the whole board of directors, and not for single members of the board of directors.

The general meeting can adopt a resolution to approve an agreement between the company and members of the board of directors that governs or restricts their liability. The general meeting can also adopt a resolution of no liability, but this can only be done for specific actions, not in general. A resolution of no liability is only effective between the company and the board of directors, which means that shareholders and others still may hold the board of directors liable.

Last modified 16 Jun 2021

A director will be protected from liability if, having participated in an unlawful agreement or being aware of it, expressed their disagreement with it at the time the agreement was made, provided that their disagreement is stated in the minutes or is notified to the company by means of notarised letter.

Directors can also take out D&O (Directors & Officers) insurance to cover them against civil liability arising from the exercise of such position, providing them with economic resources for the payment of indemnities for damages and losses.

Last modified 26 Jul 2021

  • Acknowledgement of the fulfilment of duties by members of the management board. At the ordinary shareholders’ meetings to be held each year, the shareholders should issue an acknowledgement of the fulfilment of duties by members of the management board holding their position in the previous financial year. As a result of adopting such resolution on acknowledgement, it will be difficult for the company to prove that a management board member has failed to fulfil his/her duties, although such a resolution does not automatically mean that the company waives any claims that it may have against the member of the management board. Such resolution is not effective towards third parties.
  • Insurance. Directors' and officers' (D&O) insurance is common in Poland. This insurance protects the management board members from civil liability towards third parties that has arisen from the performance of their duties as members of the governing bodies in the company. Insurers provide assistance also in the event of (actual or alleged) breach of criminal or administrative law. Certain insurance policies may finance administrative penalties imposed on members of the management board, but not on the organisation they manage. Under such type of insurance, it is also possible to cover the management board’s defence costs in both civil and criminal proceedings and some administrative and regulatory proceedings.

Last modified 8 Feb 2021

Directors' and officers' (D&O) insurance. It typically provides both cover for individual directors against claims made against them in 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.

Last modified 8 Feb 2021

  • The business judgment rule. The Company Law has introduced the common law concept of the "business judgment rule" as a legal limitation of the directors' liability. Thus, in the case of a decision based on adequate information, where it is reasonable to consider that the director has acted in the interest of the company, the director will not be held liable for damages suffered by the company. However, the director is not exempted from liability in case of fraud or gross negligence.
  • Possibility to contractually limit directors' liability. The Company Law does not regulate the possibility of limiting director’s liability. To the contrary, according to the law, failure to perform or inadequate performance of any of the duties bestowed on directors by the shareholders shall be assessed based on the highest standard of care and diligence (subject to the above mentioned business judgment rule).

However, taking into account that the directors' duties and powers are regulated by the rules of the mandate agreement, such limitations of liability are conceivable, but only as regards the liability of the directors towards the company (theoretically, the director's liability towards the company may also be limited through the articles of association or the management agreement) and not against third parties. Nevertheless, the limitation of liability for fraud, gross negligence or wilful misconduct is not possible under Romanian law. In addition, criminal liability cannot be limited.

  • Liability insurance. While, in case of JSCs, it is mandatory for the directors to have insurance for professional liability, in case of LLCs, there is no such legal requirement. If deemed necessary, such an insurance may be concluded.

Last modified 8 Feb 2021

In general, in order to impose liability on a Director or BoD member, the claimant has to prove all of the following: breach of duties, wrongfulness of the action or omission, damages of the company and causation.

Exemptions from liability for a violation of the Director's and/or BoD member's duties are set out in Resolution of the Plenum of the Higher Arbitrazh Court of the Russian Federation No. 62 dated 30 July 2013. The Director and BoD members may, inter alia, be exempted from liability in the following cases:

  • Their actions did not exceed the general commercial risk.
  • They voted against the decision which resulted in damages or did not participate in the voting.
  • They entered into an unfavourable transaction to prevent more substantial damages, etc.

It is prohibited to conclude any agreement limiting or excluding the liability of a Director or BoD member for acting in bad faith.

Last modified 8 Feb 2021

  • Ratification. Shareholders can ratify conduct by a director which is negligent or is in breach of any duty by a majority resolution (excluding the votes of the director concerned or their connected persons) upon a full and frank disclosure of all material facts.  Ratification by shareholders does not, however, absolve a director from any liability to a third party in relation to the matter concerned (e.g. creditors in an insolvency/pre-insolvency situation).
  • Indemnity. Although it is not possible for a company to exempt its directors from liability, a company is able to indemnify its directors against certain liabilities incurred to third parties. Notwithstanding, a company cannot directly or indirectly provide an indemnity (to any extent) for a director of the company against any liability attaching to him or her in connection with any negligence, default, breach of duty or breach of trust in relation to the company. To the extent that a third party indemnity is obtained, the indemnity would be void if it is against, inter alia, any liability incurred by the director in defending criminal proceedings in which he is convicted.
  • Insurance. Directors' and officers' (D&O) insurance is common in Singapore.  It typically provides both cover for individual directors against claims made against them in 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.

Last modified 8 Feb 2021

  • Ratification.  Shareholders can ratify conduct by a director which is negligent or in breach of duty by a majority resolution (excluding the votes of the director concerned or their connected persons).  Ratification by shareholders does not, however, absolve a director from any liability to a third party in relation to the matter concerned (e.g. creditors in an insolvency/pre-insolvency situation).
  • Indemnity. Although it is not possible for a company to exempt its directors from liability, a company is able to indemnify its directors against certain liabilities incurred to third parties.  An indemnity can potentially cover both the award of damages against a director and the costs involved in defending a claim but cannot cover regulatory fines or the unsuccessful defence of, or fines imposed in, criminal proceedings.  The company may also pay a director's defence costs as they are incurred – however these costs become a loan which must be repaid by a director should the defence be unsuccessful and the costs are not covered by any permitted indemnity.  The company may seek to obtain security for such loans if appropriate in order to protect the company's assets.  A company may not indemnify a director in respect of the following:
    • A liability arising from:
      • actions undertaken on behalf of the company whilst knowing he/she had no authority to act
      • acquiescence in the company carrying on business recklessly, with gross negligence or with the intention to defraud any person, or
      • a director being party to an act or omission by the company calculated to defraud a creditor, employee, or shareholder or for any other fraudulent purpose.
    • Wilful misconduct or wilful breach of trust.
    • A liability to pay a fine as a consequence of conviction of an offence (excluding a strict liability offence).
  • Insurance. Directors' and officers' (D&O) insurance is available in South Africa.  It typically provides both cover for individual directors against claims made against them in 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.

Last modified 19 Apr 2021

  • Authorization. Directors may request authorization from shareholders to carry out some actions that could otherwise imply a breach of the duty of loyalty. The company may waive the prohibitions by authorising a director to carry out a specific transaction with the company, to use certain assets, to take advantage of a specific business opportunity, or to obtain an advantage or remuneration from a third party.
  • Ratification. Shareholders can ratify the conduct of a director. However, ratification by shareholders does not absolve a director from any liability to a third party in relation to the matter concerned.
  • Insurance. This is effected through a directors' and officers' (D&O) insurance agreement. It typically provides both cover for individual directors against claims made against them in their capacity as director, including, generally, defence costs. Policy exclusions include claims in respect of a director's fraud, dishonesty, wilful default or criminal behaviour.

Last modified 8 Feb 2021

  • Ratification. Shareholders can ratify conduct by a director which is negligent or in breach of duty by a majority resolution (excluding the votes of the director concerned or their connected persons).  Ratification by shareholders does not, however, absolve a director from any liability to a third party in relation to the matter concerned (eg creditors in an insolvency/pre-insolvency situation).
  • Insurance. Directors' and officers' (D&O) liability insurance is common in Sweden.  It typically provides both cover for individual directors against claims made against them in in their capacity as director, including defence costs. The insurance also provides a cover for those entitled to compensation, which often is the company itself.  Policy exclusions typically include claims in respect of a board member's fraud, dishonesty, wilful default or criminal behaviour.

Last modified 8 Feb 2021

  • Ratification.  A company can ratify a breach by directors by passing a members’ resolution to that effect. However, such resolution must be passed by members without counting any shareholder votes of the director in breach and any other member connected to the director. Ratification by shareholders does not, however, absolve a director from any liability to a third party in relation to the matter concerned (eg winding up, bribery/anti-corruption, fraud, dishonesty, wilful default or criminal behaviour).
  • D&O Insurance. A company can purchase insurance for directors and officers (D&O) to cover director’s liability for negligence, default or breach of duty.  The policy must be taken with an insurance company in Tanzania (unless a dispensation is obtained is given by the Tanzania Insurance Regulatory Authority), exclusions typically include claims in respect of a director's fraud, dishonesty, wilful default or criminal behaviour.
  • Costs of a suit. A company may indemnify a director for any costs in defending any civil or criminal proceedings in which judgement is given in favour of the director or the director is acquitted.

Last modified 1 Mar 2021

Onshore UAE

  • Ratification.  Shareholders can ratify conduct by a director which is negligent or in breach of duty by a majority resolution (excluding the votes of the director concerned or their connected persons). Ratification by shareholders does not, however, absolve a director from any liability to a third party in relation to the matter concerned (eg creditors in an insolvency/pre-insolvency situation).
  • Indemnity. Although it is not possible for an LLC to exempt its directors from liability, an LLC is able to indemnify its directors against certain liabilities incurred to third parties. An indemnity can potentially cover both the award of damages against a director and the costs involved in defending a claim but cannot cover regulatory fines or the unsuccessful defence of, or fines imposed in, criminal proceedings.

Dubai International Financial Centre

  • Ratification.  Shareholders can ratify conduct by a director which is negligent or in breach of duty by a majority resolution (excluding the votes of the director concerned or their connected persons). Ratification by shareholders does not, however, absolve a director from any liability to a third party in relation to the matter concerned (eg creditors in an insolvency/pre-insolvency situation).
  • Indemnity. Although it is not possible for a company to exempt its directors from liability, a company is able to indemnify its directors against certain liabilities incurred to third parties. An indemnity can potentially cover both the award of damages against a director and the costs involved in defending a claim but cannot cover regulatory fines or the unsuccessful defence of, or fines imposed in, criminal proceedings. The company may also pay a director's defence costs as they are incurred – however these costs become a loan which must be repaid by a director should the defence be unsuccessful and the costs are not covered by any permitted indemnity. The company may seek to obtain security for such loans if appropriate in order to protect the company's assets.

Last modified 8 Feb 2021

  • Ratification. Shareholders can ratify conduct by a director which is negligent or in breach of duty by a majority resolution (excluding the votes of the director concerned or their connected persons). Ratification by shareholders does not, however, absolve a director from any liability to a third party in relation to the matter concerned (eg creditors in an insolvency/pre-insolvency situation).
  •  Indemnity. Although it is not possible for a company to exempt its directors from liability, a company is able to indemnify its directors against certain liabilities incurred to third parties. An indemnity can potentially cover both the award of damages against a director and the costs involved in defending a claim but cannot cover regulatory fines or the unsuccessful defence of, or fines imposed in, criminal proceedings. The company may also pay a director's defence costs as they are incurred – however these costs become a loan which must be repaid by a director should the defence be unsuccessful and the costs are not covered by any permitted indemnity. The company may seek to obtain security for such loans if appropriate in order to protect the company's assets.
  • Insurance. Directors' and officers' (D&O) insurance is common in the UK. It typically provides both cover for individual directors against claims made against them in 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.

Last modified 8 Feb 2021

Directors can be protected from liability by:

  • A written provision in the company’s certificate of incorporation that exculpates a director or officer from personal liability for breach of the duty of care (a company may not exculpate a director from liability for a breach of the duty of loyalty).
  • A written indemnification agreement between the director and the company that provides for indemnification and advancement of litigation costs.
  • Obtaining directors and officers insurance.

Last modified 8 Feb 2021

  • Ratification. Shareholders can retrospectively approve significant transactions and/or interested party transactions entered into by the director(s) without prior approval. Such approval shall create, change or terminate the rights and obligations of the company from the moment of entering into such transaction.
  • Insurance. Directors' and officers' (D&O) insurance is not common in Ukraine, though it has been some developments in recent years. Specific regulations relating to D&O insurance only currently apply to state-owned companies. Nonetheless, a number of insurance companies offer D&O insurance services for directors of private companies based on general insurance legislation. Such D&O insurance typically covers director’s liability, including fines, penalties, fees etc., as well as expenses for legal support.

Last modified 8 Feb 2021

A director of a company is liable for unlawful distributions as set out in the COBE:

  • If the director was present at a meeting when the board approved a distribution, or otherwise participated in the making of such a decision.
  • If the director failed to vote against the distribution, despite knowing that the distribution was contrary to the COBE.

 However, directors may be protected from this liability and others in the following ways:

  • Ratification. Shareholders can ratify conduct by a director which is negligent or in breach of duty by a majority resolution (excluding the votes of the director concerned or their connected persons).  Ratification by shareholders does not, however, absolve a director from any liability to a third party in relation to the matter concerned (e.g. creditors in an insolvency/pre-insolvency situation).
  • Indemnity. The company mayseeks to indemnify a director against any liability incurred by successfully defending the director in any proceedings brought against them. It is important to take note that neither the articles nor any contract may have the power to exempt a director from any such liability which by law would otherwise attach to them in respect of any negligence, breach of duty, or of trust of which they may be found guilty. The company may only defend the director in this regard, while the court can make an order as fit if they believe that a person was acting honestly and reasonably.

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