New rules on extra-contractual liability: increased risk for company directors?
Forvis Mazars in Belgium
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The old regime: quasi-immunity of auxiliaries
Under the old Civil Code, there was a concurrence prohibition on the basis of which a contracting party who suffered damage due to the fault of another contracting party could only bring a contractual liability claim. Extra-contractual liability claims were in principle excluded, with very few exceptions, e.g. in the case of a criminal offence.
Where a contracting party relied on an auxiliary, such as an employee or an independent consultant, to perform a contract, the same principles applied. In case of contractual default due to a fault of the auxiliary, the aggrieved co-contractor could only bring a contractual liability claim against its contracting party and could not, in principle, hold the auxiliary extra-contractually liable (except in case of a criminal offence).
The Belgian Court of Cassation considered directors to be auxiliary persons and found that this quasi-immunity also applied to them. Consequently, where a contractual relationship existed between the company and a contracting party (e.g. a creditor), in the event of a contractual default (e.g. unpaid invoice) due to a fault of the director, the creditor could not hold that director extra-contractually liable, but it could only address the company contractually.
The new regime: contractual and extra-contractual claims allowed
On 1 January 2025, the new Book 6 of the Civil Code (CC) on extra-contractual liability came into force. This fundamentally changed the rules on the concurrence of contractual and extra-contractual liability. Now, the aggrieved contracting party can bring both a contractual, and an extra-contractual liability claim against the other contracting party (the company in the above drawing). The defendant is in principle entitled to invoke all contractual defences also against an extra-contractual liability claim, except where there is an impairment of physical or psychological integrity or fault committed with intent to cause damage.??
The quasi-immunity of the auxiliary was also abolished. In the event of a breach of contract caused by the director of a company, the aggrieved contracting party can also hold the directors extra-contractually liable if they committed a fault. The directors can then invoke the defences both from their own contract with the company, and those from the contract between the company and the aggrieved contracting party. Exceptions also apply in the case of an impairment of physical or psychological integrity or misconduct committed with intent to cause damage.
Potential risk for company directors: more liability claims
The new legal regime makes it easier for contracting parties to bring liability claims against directors and other auxiliaries directly. Directors risk being held personally liable with their own assets. This may increase the pressure on the company to agree to the plaintiff’s claim more quickly.
How to mitigate the risks?
Directors cannot avoid the risk of liability by appointing a company as director. Directors-legal persons are required by law to appoint a natural person as their permanent representative, who is himself liable as if he were exercising the mandate in his personal name. Resigning as a director or not being formally appointed as a director is not a solution either. Indeed, a director who resigns remains liable for any fault committed before his resignation (within the limits of the statutory five-year limitation period). Not being formally appointed is not a solution either, as anyone who gets involved in the management of a company risks being qualified as a de facto director and runs a similar (and possibly even higher) liability risk as formally appointed directors.
Furthermore, the discharge granted to directors at the annual general meeting applies only in the company-director relationship and is not enforceable against third parties.
However, directors can rely on several protection mechanisms:
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Directors do not benefit from the same liability limitations as employees. The Belgian Code on companies and associations has set maximum amounts for the liability of directors, which depend on the size of the company and range from EUR 125,000 to EUR 12 million. However, the code contains a considerable number of exceptions where the liability limits do not apply, such as in cases of minor misconduct which is habitual rather than accidental, grave misconduct, fraudulent intent or intent to harm on the part of the person held liable.
Moreover, exoneration or indemnification clauses whereby the company or its subsidiaries would assume the consequences of any liability of the directors are also prohibited, both in terms of liability towards the company and towards third parties.
Companies can take out Directors and Officers (D&O) insurance to cover directors' liability for extra-contractual claims.
The above rules of the Civil Code are of supplementary law, meaning parties can deviate from them in their contracts. It is possible to provide in the contract between the company and its co-contractor that contracting parties will not bring any extra-contractual liability claims against each other, and their auxiliary persons. This is a point for consideration when drafting contracts. ?One could also consider including a similar provision in the company's general terms and conditions. Provided that the other party has been able to take note of the general terms and conditions and has accepted them (e.g. because they are attached to the order form or an invoice), they can also provide conclusive protection.
If you need any assistance in drafting or reviewing your contracts and general terms and conditions, please contact our legal team.
Sarah De Geyter
Senior Manager
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Catherine Wailly
Partner