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Director and parent company liability

Liability

Under what circumstances can a director or parent company be held liable for a company’s insolvency?

In general terms, in order to be held liable there must be damage that can be attributed to the faulty acts of the relevant director and such a director must be responsible for any non-compliance with the articles of association or law, if such non-compliance is within his or her control. In this respect, directors cannot be held liable for damages incurred by the company, its shareholders or creditors where such damage is not caused by the faulty act of the relevant director or where such damage is beyond the relevant director’s control. 

Defences

What defences are available to a liable director or parent company?

As per Article 369 of the Commercial Code, directors must carry out their duties with the due diligence expected of a prudent businessperson. Directors should therefore prove that they exercise their duties with due diligence and in good faith. However, the term ‘prudent businessperson’ is interpreted broadly by the courts and in each case it should be evaluated whether there is damage that can be attributed to a faulty act of a relevant director where circumstance were beyond that director's control. 

Due diligence

What due diligence should be conducted to limit liability?

In order to avoid directors’ personal liability, directors should act diligently and with the utmost care while carrying out management duties.

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