Director's liability

What it means

A director must act with due professional care, in the company’s interest and within the law. For loss caused by breaching those duties they answer to the company with all their assets.

The liability cannot be contracted away. A general meeting can release a director only as far as the law allows, and never as against the company’s creditors.

The limited liability of an s. r. o. protects the members, not automatically the director. Liability to the company and liability to creditors are different things: a director does not normally answer for the company’s debts, but if they have not made good loss they caused the company and a creditor cannot obtain payment from the company, the creditor can turn to the director directly, up to that loss.

How it works in practice

Three situations dominate: filing late for bankruptcy in insolvency, repaying funding during a company crisis, and failing to keep books or hand over records.

The defence is orderly documentation: written resolutions, approved financial statements, a directorship agreement and D&O insurance where the risk warrants it.

When a director changes, we recommend a written handover record: which documents, contracts, access rights and open obligations the new director takes over. For the outgoing director it proves a complete handover; for the incoming one it marks the point from which they answer for the company. We prepare the accounting part of the record with the client.

What to watch out for

Resigning does not remove liability for the period in office. Nor does "it was not me, someone else kept the books": choosing and supervising the accountant is the director’s duty as well.

Where a company has several directors, they are jointly and severally liable for loss. A director who took no direct part in a decision but knew of the problem and did nothing is not off the hook. Disagreement with a risky step should therefore be on record, in the minutes of the general meeting or an e-mail to the other directors.