Reform of the insolvency law - Part 3 - Liability of the directors in case of insolvency

Leila Mstoian Leila Mstoian
Leo Peeters Leo Peeters
Analyse

In the framework of the reform of insolvency law that entered into force on 1 May 2018, the legislator has introduced important amendments regarding the liability of the directors in case of bankruptcy. These amended liability rules apply to directors of companies and not to physical persons who operate without a corporate structure.

1. Liability claim for apparent gross fault

The liability of directors was previously regulated in the Code of companies and is now regulated in Book XX of the Code of economic law as far as it relates to the apparent gross fault that contributed to a bankruptcy.

If in case of a bankruptcy, the debts are higher than the assets, the directors can be personally or severally held liable for all or part of the debts of the company, if it is established that they committed an apparent gross fault that contributed to the bankruptcy.

"Directors" means the current or former directors, managers, daily managers, members of the directory board or of a supervisory board, as well as all other persons who had management authority over the enterprise’s business (i.e. during the period that started prior to the bankruptcy, but not necessarily until the bankruptcy).

The law defines an apparent gross fault as "each form of serious tax fraud, whether or not organised, in the sense of Article 5, §3, of the law of 11 January 1993 regarding the prevention of the use of the financial system for money laundering".

This general liability rule is now applicable to all corporate forms, where under the old rules, the apparent gross fault rules only applied to the BVBA, CVBA and NV.

This rule does not apply to small companies (with sales less than EUR 620,000, exclusive of VAT), non-profit associations and foundations with a simplified bookkeeping.  

The liability claim for apparent gross fault can be introduced by the receiver of the bankruptcy or by any harmed creditor. The latter can only introduce this claim if the receiver of the bankruptcy does not introduce within one month after having received notice from the harmed creditor.

If a person is personally held liable for apparent gross fault, and this person practices a regulated profession (lawyer, accountant, etc.), the disciplinary board of that profession is also informed.

2. Objective liability for social security debts

The objective liability for social security debts now applies to all companies, regardless of their corporate form.

Thus directors (see definition of directors in point 1 above) can at the request of the social security service or of the receiver of the bankruptcy be held personally and jointly and severally liable for all or part of the social security debt at the time of the opening of the bankruptcy:

  • if they were involved, during the course of five years prior the bankruptcy, in at least two bankruptcies or liquidations in which social security contributions remained unpaid;
  • in as far they had management authority in these other companies.

3. "Wrongful trading" - a new basis for liability

This liability claim has been introduced confirming case law regarding the liability of directors (in fact) who continue a business that no longer can be rescued.

In accordance with this new special basis of liability a director can, in case of bankruptcy, be held personally or jointly and severally liable for all or part of the debts of the company if:

  • the person concerned, at any time prior to the bankruptcy, knew or ought to know that apparently there was no perspective to maintain the company or its activities and to avoid a bankruptcy;
  • the person concerned had the capacity of a current or previous director, manager, daily manager, member of the directory board or of a supervisory board, as well as all other persons who had management authority over the enterprise’s business; and
  • the person concerned, as from the moment that he knew or ought to know, that he did not act as a prudent and diligent director would have acted placed in the same circumstances.

The liability claim based on “wrongful trading” can only be introduced by the receiver of the bankruptcy.

4. Conclusion

The above described liability rules relates to specific rules provided for by insolvency law in case of bankruptcy.

In addition, directors of companies are subject to general liability rules of directors of a company of an association, provided for in the Code of Companies, which is also in the process of being amended.

The other articles concerning the reform of solvency law may be consulted by clicking below :

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Leila Mstoian

Leila Mstoian

Partner
Leo Peeters

Leo Peeters

Partner