A mistake

• But negligence or carelessness is also sufficient.
• From you, but also from the employees or products for which you are responsible.

Someone suffering damage

• Damage may be physical, e.g. injury or incapacity for work.
• or material, e.g. a machine that breaks down.
• But also financial, e.g. loss of turnover, loss of customers…

A clear link between both fault and damage

No, that is a common misconception. The ordinary liability policies (or professional liability in the case of ICT companies) protect your company against, among other things, the financial consequences of mistakes made by employees. The type of errors covered are those linked to the specific business activity (e.g. software development). Errors in the management of the company itself are not covered and are always explicitly excluded.

In general terms, directors’ liability insurance compensates for

• The civil defence costs:the costs of a lawyer and the like if someone tries to hold you liable in court.
• The damages: the compensation to a third party that a court orders you to pay will be taken for the account of the insurer, within the limits of the insurance policy.

The most important point is often the defence costs. It is not that directors are constantly being held liable, but they are increasingly being called to account. Then you have to be able to defend yourself adequately. The costs of the defence quickly become very high.

In general terms, directors’ liability insurance compensates for

• The civil defence costs:the costs of a lawyer and the like if someone tries to hold you liable in court.
• The damages: the compensation to a third party that a court orders you to pay will be taken for the account of the insurer, within the limits of the insurance policy.

The most important point is often the defence costs. It is not that directors are constantly being held liable, but they are increasingly being called to account. Then you have to be able to defend yourself adequately. The costs of the defence quickly become very high.

Preventively you can do quite a lot to reduce the risk:

• Before taking office, make a thorough analysis of the company
• Make sure the Board of Directors is diverse in its knowledge and experience
• Work on a framework that allows for good governance
• And so on…

Legally, there are also a number of mechanisms by which you can provide additional cover. For example, you can limit your liability to the company by means of an agreement.

Removal is an ultimate means if you really see that in terms of governance things are going wrong, but is only a means for the future.

Preventively you can do quite a lot to reduce the risk:

• Before taking office, make a thorough analysis of the company
• Make sure the Board of Directors is diverse in its knowledge and experience
• Work on a framework that allows for good governance
• And so on…

Legally, there are also a number of mechanisms by which you can provide additional cover. For example, you can limit your liability to the company by means of an agreement.

Removal is an ultimate means if you really see that in terms of governance things are going wrong, but is only a means for the future.

After prevention and legal solutions, a director’s liability insurance remains appropriate to cover most of the remaining risks.

Many different parties can file a claim. These can be both internal (shareholders, other directors, (ex-)personnel members, etc.) and external parties (government, tax authorities, banks, etc.).

From statistics of insurers we know that the majority of the claims come from the judicial authorities (prosecutor). External parties (e.g. supplier, financier, …) and employees follow in second and third place respectively. Other government authorities (tax authorities, National Social Security Office, etc.) are in 4th place and account for 8% of the claims.

It has to be said that more and more employees (e.g. in case of bullying at work) are taking the step to hold a director liable for this.

As a director, you are in the first instance not personally liable for the commitments of the company you manage.

But there are quite a few cases in which you, as a director, can be held personally liable:

A personal error in the performance of one’s duties. Some examples

• being insufficiently concerned with the company’s policy
• undertaking a financial commitment (e.g. an investment decision) that is clearly unfavourable to the company

Contravention of company law or of the articles of association

• Failing to comply with the rules governing the convening of the General Meeting
• Failing to comply with minutes of meetings of the GM or Board of Directors
• Failing to comply with the Articles of Association. For example: signing as sole director higher amounts than permitted by the Articles of Association.

Classical liability for errors and omissions

Possible examples are:

• Unreasonably continuing a loss-making activity
• Undertaking commitments that you as director know or should have known the company could not meet

Specific cases provided for in company law

• ‘obvious gross negligence’ in case of bankruptcy of the company
• directors are liable for payment of outstanding withholding tax or VAT if they have committed an error. Since 2006, there has even been an automatic presumption of fault if the VAT or wage tax has not been paid for a number of instalments.
• Directors are also personally liable for late payment of social security contributions.

Criminal liability

• Some offences are punishable by criminal sanctions
• For example, the use of corporate assets for private purposes (“misuse of corporate assets”) may be punishable by criminal law.