Are directors “auxiliaries”?

Auxiliaries are persons to whom the debtor of an obligation calls for the performance of its obligation. Companies act and perform their obligations through their corporate bodies. Directors, as members of the administration body of their company, undoubtedly fall within the definition of auxiliaries of the company and will thus be affected by the legislative change.

What did the quasi-immunity of auxiliaries refer to?

Under current Belgian case law, the principal can only claim from directors of its contracting party (i.e. the company) if the directors breached the general duty of care (and not a contractual obligation) which caused damage different from the one resulting from the mis-performance of the contract entered into between the principal and the company. In practice, save in exceptional circumstances, these conditions are rarely met and the directors are therefore (quasi) immune from claims by the principal. Consequently, the principal typically focuses on its contractual claim against the company.

What impact will the abolition of the quasi-immunity have?

As a consequence of the abolition of the quasi-immunity of auxiliaries, the principal will be allowed to bring a tort claim directly against directors if it can demonstrate that the directors committed a fault that caused damage to the principal.

A director, however, may raise several defences to such a claim:

  • Defences based on the contract between the principal and the company (to which the director is not a party): the director may raise the same defences against the principal as those that the company itself may invoke against the principal, such as a liability exemption or limitation clause, a statutory limitation period, etc. In other words, the director cannot be treated more unfavourably than the company.
  • Defences deriving from the contract between the company and the director (to which the principal is not a party): in addition to the contractual provisions themselves, this includes the protection provided by the Belgian Companies and Associations Code, in particular the cap on the amount of liability incurred by directors.

Two exceptions to these defences are provided in case of (i) damage resulting from physical or psychic injury and (ii) fault committed with the intention of causing damage.

How can directors be protected?

To protect directors against tort claims from principals, two main measures can be considered:

  • Including an exoneration clause to the benefit of the directors in the contractual relationship between the principal and the company, whether in the contract itself or through the general terms and conditions of the company.
    Contractual freedom is more restricted in the relationship between the company and the director since the Belgian Companies and Associations Code prohibits the company from exonerating or guaranteeing in advance the director's liability towards the company or third parties. An exoneration or hold harmless clause in the contract between the company and the director would therefore be set aside.
  • Taking out a sound liability insurance: the importance of the D&O insurances will increase significantly with the introduction of the new tort law regime. It is therefore essential to take out or review existing insurance policies to ensure that they cover the new grounds of directors' liability.

Conclusion

Principals have gained a new tool to claim compensation for the damages caused by a fault of directors in the execution of the contract between the principal and the company. While we hope that tort claims by principals against directors will remain exceptional, they should not be overlooked, especially in cases where directors' pockets are deeper than those of the company (e.g. in the event of bankruptcy of the company). We strongly recommend taking the necessary steps now, as even though the new regime is not expected to come into force until 1 January 2025, it could nevertheless apply to contracts already in force on that date on the basis of the text of new Book 6.

Should you require any assistance in preparing for the application of the new regime, our experts are at your disposal.