Complying with accounting formalities is necessary to avoid directors' liability

When manifestly gross errors by a director contributed to the bankruptcy of a company, the director can be held liable for the company's debts. This claim can be brought by either the bankruptcy receiver or by a creditor, if the bankruptcy receiver does not make the claim. In both cases, the compensation is shared proportionally among the creditors.

However, this liability does not apply when the bankrupt company is a small company. A company is deemed to be small, if over the three financial years before the bankruptcy, it achieved an average turnover of less than €620,000 excluding VAT, and the balance sheet total at the end of the last financial year did not exceed €370,000.

It is up to the director to prove that these conditions are met.

The Supreme Court now ruled that a director can only rely on this exception in the event of proper compliance with accounting formalities.

The case related to a company that had been declared bankrupt on 12 October 2020 and whose annual accounts for the financial year ended 31 December 2019 should have been approved on 1 June 2020 and filed with the National Bank for publication no later than 30 days thereafter. The  Court of Appeal of Liège had already ruled that the director could not invoke the exception of being a small company because the annual accounts as of 31 December 2019 had never been approved or published. The balance sheet as of 31 December 2019 that had been prepared after the bankruptcy could not be taken into account to determine whether or not the criteria of  a small business were met. The Supreme Court upheld this court decision.

In other words, this shows that directors of small companies have every interest in having their annual accounts prepared, approved and filed with the National Bank on time and correctly. Only under this condition can they rely on the small company exception.

But beware! These formalities are not only important for directors of small companies because failure to comply with them may in itself constitute grounds for directors' liability for all companies.

Correct "Corporate housekeeping" is thus extremely important for every company director. We therefore invite you to take a look at our website and get to know our "Business Pack Corporate Housekeeping" by clicking on this link. There, you will find various formulas for managing your company's administration. You can also request a quote with a simple click, after which we will be happy to prepare a proposal tailored to your company, all this on a no-obligation basis.

If you have any questions on this subject, please do not hesitate to contact our specialists: +32 (0)2 747 40 07 or info@seeds.law.