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Director and parent company liability
Under what circumstances can a director or parent company be held liable for a company’s insolvency?
In general terms, in order for a director 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.
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 business person. Directors should therefore prove that they have exercised their duties with due diligence and good faith. However, the term ‘prudent business person’ 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 and whether the circumstances were beyond that director's control.
What due diligence should be conducted to limit liability?
In order to avoid directors’ personal liabilities, directors should act diligently and with the utmost care while carrying out their management duties.
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