The managing directors are collectively responsible for the general affairs of the company, e.g. day-to-day management, determination of the policy and the execution thereof. Additionally, each of the directors is responsible for the proper performance of its (allocated) tasks and duties. In case of alleged mismanagement, each of the board members is liable in full, unless board members can prove that the mismanagement was not attributable to her (or him) and that she (or he) was not negligent in acting to prevent its consequences. In some cases, it may even be necessary to resign as director in order to avert liability. Examples of improper management include:
Examples 1 and 2 are illustrative examples of frustrating paperwork that usually is neglected until it is too late. A clear understanding of a company’s rules, including the Articles of Association and Shareholders’ Agreement, obviously helps directors to remain in control and to avoid liability.
- ِacting in contrary to the rules included the Articles of Association or other legal documents (e.g., Shareholders’ Agreement);
- taking (unnecessary) financial risks without thorough preparations or securities;
- withdrawing assets of the company for private purposes;
- refraining from concluding customary insurances; and
- seizing corporate opportunities or competing with the legal entity.
Directors can also be liable to third parties (e.g. third parties, such as creditors) in case of serious culpability. This liability can be established upon various grounds, but generally only becomes manifest in case of bankruptcy of the company (e.g. shortfall of assets or unpaid taxes). Examples of the above are as follows:
- In the event of a bankruptcy, the bankruptcy trustee will review whether the annual accounts of the company have been filed in a timely manner and/or whether the directors fulfilled their bookkeeping duties during the years prior to the bankruptcy. If this is not the case, Dutch law presumes that the directors’ duties have been fulfilled improperly and must have been a major factor that contributed to the bankruptcy, thus significantly increasing the risk of liability for the deficit;
- A director may be liable for a deficit if she (or he) entered into a contract, or agreed to a distribution of profit, whilst the director knew or could reasonably have known that the company could no longer meet its financial obligations within a reasonable timeframe and would not offer (sufficient) recourse; and
- Directors may be liable for unpaid taxes (unless notified timely).
Reducing your liability risk with ease
The above shows that liabilities are easily triggered. Let’s zoom in on how Govin can reduce your liability risks without hassle.
Making legal documentation simple
Having a detailed understanding of the constitutional documents (articles of association and shareholders’ agreement, etc.) is crucial in good governance. But these documents are unstructured and complex, especially for people without a legal background. Govin provides insight into essential governance processes (e.g. resolution management) via its platform and categorizes the constitutional documents on a “per clause” basis, which helps investors and founders to make informed decisions, be compliant and confident in a matter of clicks.
Automated paper trail for governance
By centralizing all governance data and workflows, the platform offers a paper trail enabling directors to prove that companies are in good standing. No more endless searching in your inbox for resolutions and approvals from months or even years ago. Or WhatsApp messages, or even phone calls. None of that.
Automated corporate housekeeping
Everyone knows that your corporate housekeeping (such as annual accounts filing overview – because of liability) is important, yet it is usually not one’s top priority. Simply share the legal documentation of your portfolio with us, we do the rest. Govin automatically checks and sends out periodic updates so you are always on top of your compliance. Additionally, Govin also monitors your Directors & Officers insurance. Do you want to reduce your liability while saving time and costs? Let’s discuss further.
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Discharge basically means that directors are released from liability. This decision is being made by the general meeting. Board members often do not realize that the scope of the discharge is limited. This is because the discharge will only release board members from liability vis-à-vis the company (i.e. release from internal liability). The previous implies that third parties, such as creditors, may disregard the discharge. It should furthermore be observed that the scope of the discharge is limited, as its scope is limited to the information as evidenced in the annual accounts and/or details that have been discussed at the general meeting.