This is what the new law on increased liability for company directors says

What Awaits Us?

Due to a new law coming into effect on January 1, 2025, directors (and to a lesser extent employees who enjoy better legal protection) risk being personally liable for (even simple) errors in performing their duties.

Directors are regarded as so-called auxiliary persons. They perform tasks for the company they represent. These companies are often contractors in an economic context performing services for clients.

In terms of corporate law, the new regulation represents a radical change to a system that has been in place for decades: the contractual creditor (client) could previously only hold their direct debtor (main contractor) liable for damages but not the director (subcontractor/auxiliary person). This system will fundamentally change. With the introduction of the new Civil Code ('NBW'), the contractual creditor will also be able to hold the so-called auxiliary person liable.

How Was It Until Now?

If an auxiliary person/director of a main contractor/company makes a mistake in the execution of a contract between this company and its client, that auxiliary person/director is currently protected. Even if the auxiliary person/director commits a tort (being a violation of the general duty of care) in executing that contract, the client generally cannot hold the auxiliary person/director directly (on a non-contractual basis) accountable for that damage, unless the conditions of the so-called convergence are met. This is the case if (1) the error is also a crime, or if the error is a mixed error (specifically a breach of a contractual obligation and the general duty of care) and (2) the damage is purely non-contractual.

The client can therefore only address the main contractor/company and not the auxiliary person/director directly.

Summary:

• The auxiliary person/director is not a party to the contract between the client and the main contractor/company. The auxiliary person cannot be contractually held liable by the client because there is no contractual relationship between the client and the auxiliary person.
• The auxiliary person/director can only exceptionally be held non-contractually liable by the client if the conditions for convergence are met.

Future Regulation

• The auxiliary person/director is not a party to the contract between the client and the main contractor/company.
• The auxiliary person/director cannot be contractually held liable by the client as there is no contractual relationship between the client and the auxiliary person/director. This situation does not change.
• The auxiliary person/director can be held non-contractually liable by the client (Article 6.3, § 2 NBW).
• The debtors (both the main contractor/company and the auxiliary person/director) can invoke defenses derived from the contract (e.g., general terms), special legislation (e.g., Article 18 Work Accident Law), or specific prescription rules in both cases.

Contractual Protection?

It's important to know that the new regulation is supplementary law. This means that parties can deviate from it contractually.

Firstly, main contractors/companies may attempt to exclude the liability of their directors (and employees) as much as possible in contracts with their clients.

Directors (and employees) can also include liability limitations in their contract with the company. The auxiliary person/director can invoke exceptions from the contract between the client and the contractor/company as well as those from the agreement between the latter and themselves when addressed on a non-contractual basis. Drafting directors' agreements will thus be essential. This poses a potential problem particularly for smaller companies due to the lack of such contracts and internal lawyers.

Finally, liability insurance will need to be adjusted. How the insurance sector will respond is not entirely clear yet.

Ultimately, it should be noted that the law (‘WVV’) provides that the liability of directors is limited based on the size of the involved company with a minimum cap of 125,000.00 EUR and a maximum cap of 12,000,000.00 EUR.

Conclusion

The trend continues where company directors face an increasing risk of liability. This is also reflected in other legal domains (such as the ESG regulation), which will be covered in separate articles.