Legal guide for company directors and CEOs in Belgium

In Belgium, the main principles of corporate governance are enshrined in the Belgian Companies and Associations Code (“CAC”).

Applying to listed companies, the Belgian Corporate Governance Code (“CGC”) complements the principles provided by the CAC. The application of this Code is compulsory, as under the “comply or explain” principle, listed companies’ boards of directors have to explain in the corporate governance statement why they have not complied with the CGC. For unlisted companies, on the other hand, the Code Buysse contains a series of corporate governance principles, but contrary to the CGC, it is not mandatory.

In the following developments, different ESG considerations which are part of the broader principles of corporate governance, will be highlighted.

This guide focuses on the rules relating to companies limited by shares (société anonyme/SA or naamloze vennootschap/NV) only.

Governance

The legislator introduced different kinds of principles and obligations to ensure socially responsible governance regarding, among others, the notion of corporate interest, the remuneration of directors and managers, related party transactions and diversity among board members. The goal behind such obligations is to improve the long-term active engagement of the board with the company stakeholders, including its shareholders.

The notion of corporate interest

According to a general principle, the board of directors of a Belgian company must act and decide according to the “corporate interest” (vennootschapsbelang/intérêt de la société). While the legislator often refers to the corporate interest of companies, the concept has never been defined. In legal doctrine, dissenting opinions have been expressed and controversy remains.

However, since 2013, the Belgian Supreme Court has brought some clarity to the debate, making it clear that the concept of corporate interest in Belgium must be considered beyond the financial interest of the company’s shareholders. Indeed, the Supreme Court established a collective perspective of the concept, the social interest being, among others, determined by the financial interests of both the current and the future shareholders of the company. This extensive vision implies a perspective of going concern, the board of directors being obliged to adopt a decision-making process which is socially responsible. Therefore, not only the shareholders’ interests and the profitability of the company, but also the interests of other stakeholders such as employees, consumers, creditors and suppliers, must be taken into account within the company policies and strategies.

Remuneration of the board of directors

In listed companies, mandatory disclosure requirements on remuneration and “say on pay” provisions are provided by the Belgian legislator in accordance with the revised EU Directive on Shareholder Rights (SRD II).

The remuneration granted to directors is disclosed through both the remuneration policy and the remuneration report (see infra for content).

The remuneration policy, part of the remuneration report, aims to allow shareholders to keep a view on directors’ remuneration. It must be submitted separately for approval of the shareholders by the general meeting (in case of material change, and in any case, every four years). Following the Law of 28 April 2020, the “say on pay” principle submits additional provisions for shareholders’ approval in listed companies, among which: (i) any agreement that awards variable remuneration to a non-executive or non-independent director; (ii) any contractual provision regarding an executive director or another person entrusted with the management or daily management of the company which provides a severance pay for an amount exceeding 12 months of salary.

In the remuneration report, listed companies have to explain clearly how total remuneration complies with the remuneration policy and is favourable to long-term performance.

Related party transactions

Here again in accordance with the EU Directive on Shareholder Rights (SRD II), the Belgian legislator set forth further obligations regarding transactions with related parties, i.e. between a company and its directors.

The notion of related party not only refers to the notion of control but now also refers to persons who have significant influence. Therefore, transactions with any related party within the meaning of the International Accounting Standard 24 (IAS 24) are subject to the conflict of interest procedure.

Both decisions and transactions with related parties within the powers of the administrative body, as well as some proposals by the administrative body (such as proposals of contributions in kind), require a prior written report by a committee consisting of three independent directors and immediate announcement of the transaction by the company. The announcement must contain at the least information on the nature of the related party relationship, the name of the related party, the date and the value of the transaction, as well as any information necessary to assess whether or not the transaction is good value for money from the perspective of the company and of the shareholders who are not related parties.

The announcement must be published on the company’s website. An overview of the decisions and transactions, including related third parties which have occurred over a given financial year, must be restated in the company’s management report.

Gender diversity among board members (in public interest entities)

In public interest companies (i.e. listed company, credit institution, insurance and reinsurance institution, clearing institution or similar), at least one third of the members of the board of directors must be of a different gender than the other members, the required minimum being rounded upwards to the next whole number. In a two-tier NV/SA company (see infra), the gender quota applies to the supervisory board, but not to the management board. If the director is a legal person, gender is determined on the basis of the permanent representative.

Any director’s (re)appointment leading to a breach of the gender quota is automatically null and void. If gender equality within the board fails at any given moment, the next general meeting of shareholders must ensure that the board’s composition complies with this rule. As long as the board’s composition fails to meet the gender equality requirements, all benefits (financial and others) in connection with a director’s mandate will be suspended.

Eventually, the CGC recommends that the composition of the board should be determined in a way which gathers sufficient expertise in the company’s areas of activities as well as diversity of skills, background, age and gender.

For unlisted companies, there are no mandatory legal requirements regarding gender equality.

Social

When focusing on social matters, both the CGC and CAC provide obligations regarding a perspective of sustainable long-term value creation. More specifically, a legal framework constrains the board of directors to engage in a mandatory dialogue with two kinds of stakeholders in particular: employees and debt-holders.

Sustainable long-term value creation

For listed companies, the CGC sets forth the explicit obligation for the board to pursue a sustainable long-term value creation while adopting the company’s strategy. Such value implies the implementation of a responsible and ethical leadership as well as the elaboration of an inclusive approach, balancing the interests and legitimate expectations of shareholders with those of other stakeholders.

Works council

The Belgian legislator provides that every company which employs an average of at least 100 employees must establish a works council. In companies where a works council already exists, this body must continue to exist as long as the company employs at least 50 employees.

The works council is an entity whose purpose is to improve communication and the relationship between the company’s workers and its management. The CAC and the law set forth a series of rights in favour of the works council.

Among other matters, the board of directors has to communicate the remuneration report to the works council, as well as any executive member’s severance payment in excess of 12 months’ remuneration submitted for the approval of the general meeting. On various occasions the works council will be allowed to access information regarding the company’s financial results and give its opinion to the board regarding different decisions.

Environment

Following EU directive requirements, the CAC requires public interest entities to disclose, either in their management report or in a separate statement, a “non-financial statement” when they have more than 500 employees and exceed at least one of the two following financial criteria: (i) balance sheet total of EUR 17 million; (ii) annual turnover of EUR 34 million.

A non-financial statement must include aspects regarding, among other matters, the environment (see infra for content of the report). The management has to describe the policies set up by the company to cope with the environmental impact of its activities and the results of such policies, as well as the main risks linked to environmental questions regarding the company’s activities and key performance indicators used by the management to assess such activities.

Regarding specific regulations relating to the environment, the different Belgian legislators (federal and regional) provide environmental, waste and soil legislative acts, infractions of which are sanctioned through a variety of administrative and criminal sanctions.

Please, refer to question 1 for a general approach regarding ESG considerations as a whole.

Recent changes in legislation clearly indicate a trend in favour of ESG considerations, and more particularly towards the environment. Indeed, in its new CAC (entered into force on 1 January 2020), the Belgian legislator has provided multiple references to the pursuit of long-term goals as well as corporate governance aspects including diversity and environment questions.

Such a shift towards ESG consciousness takes a global perspective as many legislators now integrate these concepts within their legal reforms. Furthermore, jurisdictions around the world are addressing an increasing number of cases involving climate change.

A recent successful claim which has been brought against Royal Dutch Shell (RDS) has made potential liability for companies and directors a reality.

In May 2021, the Hague District Court ordered the RDS to reduce the CO₂ emissions of the Shell Group by 45% by 2030, relative to its 2019 levels. Indeed, the Court found that certain Dutch citizens would suffer harm as a result of the CO₂ emissions of the Shell group, meaning RDS would fail to meet the “unwritten standard of care” provided by the Dutch Civil Code and fail to act in accordance with the due care exercised in Dutch society. The Court ruled that RDS must reduce the CO₂ of the Shell Group through implementing a compliant Shell group corporate policy, the later ruling being provisionally enforceable.

This case law is striking and could potentially lead to comparable decisions in Belgian Courts.

First of all, as explained above, Belgian corporate law admits the principle of “corporate interest” which forces the board of directors to conduct a strategy which is socially responsible. Moreover, the CAC provides liability for its violation as well as the violation of the articles of association, directors being jointly and severally liable (even if they do not act as a collegial body) to the company, as well as to third parties. Finally, the Belgian Civil Code also includes tort law liability in its article 1382 according to which any person that causes a damage to another person is under an obligation to indemnify the other person for the damage it has suffered. In principle, directors are liable on an individual basis in this last respect.

Even if there are no published significant judicial decisions rendered in Belgium on these bases, the perspective of future litigation must encourage directors to take very seriously the issues of climate change and the environment as a whole in their company’s decision-making processes and corporate strategies. This is the best option for directors willing to steer well clear of any personal liability exposure from potential legal risks.

ESG factors imply a series of obligations regarding the disclosure of information by companies. Each of these obligations aims to improve the transparency of company activities and the directors’ decision-making process.

Annual accounts

Annual accounts contain a balance sheet, profit and loss statement and explanatory notes. They are to be filed with the National Bank of Belgium and posted on its website (and, for listed companies, posted on their own website). In companies with a statutory auditor, certification of the annual accounts is to be issued by the auditor, appended to the annual accounts and made public in the same manner.

Management report

Attached to the annual accounts, the management report discusses, among other subjects, the results of the company over the past financial year and its financial development. The report also includes information on transactions where a director reports a personal financial interest in a transaction subject to the board’s decision. The management report is made public at the same time and in the same manner as the annual accounts.

Corporate governance statement (for listed companies)

Disclosed on the company’s website and provided within a specific section of the management report, the corporate governance statement’s content is set forth in the CAC. In this document, listed companies will describe the main aspects of their corporate governance, including elements of corporate responsibility and environmental, social and governance considerations.

The corporate governance statement must include: (i) designation of the corporate governance code applied by the company, as well as an indication of the place where such code can be publicly consulted, and where applicable, relevant information on corporate governance practices applied in addition to the code adopted and the legal requirements; (ii) where applicable, an indication of the parts of the corporate governance code from which the company derogates and the reasons for such derogations; (iii) a description of the main features of the company’s internal control and risk management systems in relation to the financial reporting process; (iv) the shareholder structure on the balance date, as it results from transparency declarations received by the company; (v) the composition and operation of the management and supervisory bodies and their committees; (vi) a description of the diversity policy applied within the company’s management and supervisory bodies (with regard to aspects such as gender, age or educational and professional backgrounds), the objectives of that diversity policy, the manner in which it has been implemented and the results in the reporting period; and if no diversity policy is applied, an explanation as to the reason why it is the case; (vii) information on transfer restrictions; the holders of any securities with special control rights and a description of those rights; any restrictions on voting rights; any transfer or voting restrictions resulting from shareholders’ agreements known to the company; rules governing the appointment and replacement of board members and the amendment of the articles of association; the powers of board members, especially the power to issue buy back shares; any significant agreements to which the company is a party subject to change of control provisions and the effects thereof (unless their disclosure would seriously prejudice the company and the company is under no other requirement to disclose such information).

It includes financial data such as the identity of shareholders whose stake on the final date of the past financial year reaches or exceeds certain mandatory thresholds, as well as the remuneration report.

Environmental and social factors (for public interest entities)

To the extent necessary for an understanding of the company’s business development, performance, condition and impact, relating at least to social, environmental, personnel, human rights and anti-corruption issues, the management report shall include a statement containing the following information: (i) a brief description of the company’s activities; (ii) a description of the company’s policies in relation to these matters, including the due diligence procedures carried out; (iii) the results of these policies; (iv) the principal risks associated with these matters in relation to the company’s activities including, where relevant and proportionate, the company’s business relationships, products or services which are likely to have an adverse impact in these areas and how the company manages these risks; (v) non-financial key performance indicators relating to the activities in question.

Where the company does not apply a policy in respect of one or more of these matters, the non-financial statement shall include a clear and reasoned explanation of the reasons for not doing so.

In exceptional cases, the board of the parent company may decide to omit from the statement information about impending developments or matters under negotiation where, in the duly reasoned opinion of the board and as part of the collective responsibility of its members for that opinion, the publication of such information could seriously harm the company’s business position, provided that the omission of such information does not prevent a fair and balanced understanding of the development of the company’s business, its performance, its position and the impact of its activity.

Remuneration policy (for listed companies)

In listed companies, the board of directors is responsible for drafting and adopting the remuneration policy, which must then be approved by the shareholders’ meeting.

The remuneration policy must include the following information: (i) an explanation of how the policy contributes to the company’s business strategy, long-term interests and sustainability; (ii) a description of the different components of fixed and variable remuneration that can be granted; (iii) an explanation of how the salary and employment conditions of employees were taken into account in determining the remuneration policy; (iv) a description of the financial and non-financial criteria used in relation to variable remuneration, the methods used to measure these criteria and the possibility of the company to claim variable remuneration back, or to postpone the payment of such remuneration; (v) description of the terms and conditions of share-based remuneration; (vi) information relating to notice periods, supplementary pension or early retirement schemes and severance payments; (vii) description of the approval process for directors’ remuneration and the role of the remuneration committee.

Remuneration report (for listed companies)

As part of the corporate governance statement, the board of directors must also prepare a remuneration report providing details of the remunerations of both the directors, the daily managers, the members of the management, the supervisory board and other executives.

As provided by the CAC, the remuneration report must include the following information: (i) the total remuneration split out by component: base remuneration, variable remuneration, pension and other components of remuneration (such as insurance and other benefits in kind); (ii) the relative proportion of fixed and variable remuneration; (iii) a justification of why the amount of remuneration is in line with the remuneration policy and how it contributes to the company’s long-term perspective; (iv) information on how the performance criteria have been applied in the financial year concerned; (v) a description of the number and main features of the shares and share options or other rights to acquire shares that were awarded, exercised or lapsed during the financial year concerned; (vi) in case of resignation or dismissal of a director, the justification of the severance payment awarded (if any); (vii) if applicable, details on the possibility to claim back variable remuneration; (viii) details on possible deviations from the remuneration policy and exceptional deviations under Article 7:89/1, paragraph 5 of the CAC; (ix) the annual change in remuneration, the performance of the company and the average remuneration of the employees other than the directors (for at least five financial years); (x) the ratio between the highest remuneration and the lowest remuneration within the company.

Report on payments made to governments (for specific business segments)

For listed companies belonging to specific business segments (extractive industries and exploitation of primary forests), the CAC provides an obligation to draft an annual report on payments made by the company to governments.

The report includes total amounts paid to governments including production duties; taxes on income, production or profits; royalties; dividends; bonuses; licence fees. Payments or series of payments which amount to less than EUR 100,000 in a financial year shall not be reported.  

The administrative body must file the report on payments made to governments with the National Bank of Belgium, along with the annual accounts.

On 28 February 2019, the new Belgian Companies and Associations Code (“CAC”) was adopted by the Belgian Chamber of Representatives. The reform was initially launched by the Belgian Minister of Justice in order to serve three main objectives: simplify the corporate regime, increase flexibility and implement various corporate reforms adopted at EU level.

The new CAC enters into force on 1 May 2019 for any entity newly incorporated after that date. For existing entities (i.e. companies incorporated before 1 May 2019), the effective date is 1 January 2020 for both mandatory and supplementary provisions if, with respect to the latter, the bylaws do not provide otherwise.

The above-mentioned reform introduces three options for organizing the governance of a SA/NV:

• One-tier system, with a “classic” board of directors composed of, in principle, at least three directors. The board of directors is a collegiate body. Its decisions are taken with a majority of votes unless the articles of association provide otherwise. The board of directors has the most extensive powers to manage the company and take all actions necessary or useful to accomplish the corporate purpose and the purpose of the company, unless such actions fall within the scope of powers expressly reserved by law to the general shareholders’ meeting. 
• Two-tier system, with two corporate bodies namely the supervisory board (conseil de surveillance/raad van toezicht) and the executive board (conseil de direction/directieraad). Each body is separate from the other and has distinct powers, the first being in charge of general business policy matters, the other having responsibility for all matters not specifically reserved for the supervisory board – mainly the operational management of the business. Each body comprises at least three members who cannot be members of both corporate bodies at the same time.
• Sole directorship, with a single director in charge of every aspect of the management of the company except matters reserved for the shareholders’ meeting. The sole director may be an individual or a legal entity, except in listed companies where it has to be a SA/NV with a board. 

It is worth stressing that Belgian law does not make a difference between “executive directors” and “non-executive directors” in terms of liability. Belgian courts have even sanctioned “non-executive directors” for negligence in the execution of their mandate. Consequently, much of the information in this guide will apply equally to non-executive (or supervisory) directors.

In a two-tier system, the supervisory board oversees the executive board. As part of its supervisory role, the supervisory board will be exclusively responsible for deciding on the discharge of members of the executive board following approval of the annual accounts.

There are few legal restrictions on who can be a director of a company limited by shares (examples include minors and individuals who are personally bankrupt). The articles of association may, however, contain certain requirements such as a specific diploma or profession. 

An individual director is not required to be resident in Belgium, nor is there a nationality requirement. Directors residing abroad are deemed to be domiciled for the entire duration of their appointment at the registered office of the company, where all notifications may validly be made to them.

A company can be appointed as a director but must appoint an individual to act as its permanent representative. This permanent representative must be a shareholder, director or employee of the company.

As earlier mentioned in the case of listed companies, at least a third of the directors must belong to the opposite gender to the majority of directors.

As a general rule, directors are appointed by a general meeting of shareholders. On incorporation of a company, the directors may be appointed in the deed of incorporation by the general meeting. If there is a vacancy on the board of directors, the remaining directors (or the supervisory board in a two-tier governance model) have a right to fill such a vacancy temporarily by co-opting a director, unless the articles of association provide otherwise. The next general meeting then confirms the director’s appointment.

Co-opting is only mandatory if the board of directors (or the supervisory board in a two-tier governance model) would no longer have the required number of members (i.e. less than three directors in office). A general meeting of shareholders must always have a free choice of appointment. The articles of association prescribe the duration of a director’s term of office, which cannot exceed 6 years. Unless the articles of association provide otherwise, directors are eligible for reappointment. In the event of an early vacancy, a newly-appointed director serves for the remaining term of the person he/she replaces.

Before the reform, the mandate of a director could be terminated at any time (“ad nutum”) by a decision of the general meeting of shareholders deciding with a simple majority. This rule was of public order.

Ad nutum revocation (with immediate effect and without indemnity) has now a supplementary nature. In addition, even if the general meeting of shareholders may have the right to dismiss at will, it may provide for a deferred dismissal date or for an indemnity. The articles of association may also provide for a mandatory notice period or indemnity in lieu of notice when the director is dismissed without good cause (justes motifs/wettige redenen).

However, in the case of dismissal with good cause, the general meeting may terminate the mandate of a director without indemnity or notice period irrespective of provisions in the articles of association.
When directors are specifically appointed by name in the articles of association, their dismissal requires an amendment to them.

Directors may voluntarily resign at any time upon notification to the board. Upon request of the company, they must however remain on the board until they are replaced.
In a SA/NV, directors can be appointed for a period of up to 6 years (renewable).
The removal or resignation of a director must be published, within 15 days, in the Belgian Official Journal and filed with the office of the relevant Enterprise Tribunal in the jurisdiction where the company has its registered office. The publication of the removal or resignation makes the resignation binding on third parties.

The removal or resignation of a director does not shield him/her from liability for the past. He/she can still be liable for faults committed during his/her office, even if the damage occurs after his/her removal or resignation. 

The board of directors has all the powers that are necessary or useful to achieve the company’s corporate purpose, save for those powers expressly reserved for the general meeting of shareholders by law or by the articles of association. The board of directors represents the company towards third parties.

The articles of association may grant one or more directors the power, solely or jointly, to represent the company in all acts, deeds and before the courts and public authorities. Such authority must be published in the Belgian Official Journal.

The day-to-day management of the company and the representation of the company in relation to management matters may be entrusted to one or more managing directors. A managing director is appointed and removed by the board of directors. The articles of association may provide for rules concerning the appointment, removal and powers of managing directors.

One-tier system

A public limited company must have at least three directors. However, if the company has only two shareholders, the board may consist of only two directors. There is no maximum number of directors unless the articles of association provide otherwise.
The board of directors is a collegiate body. Its decisions are taken with a majority of votes unless the articles of association provide otherwise. The directors can take decisions in writing (i.e. without a formal meeting) only if such decisions are taken unanimously.

Two-tier system

A public limited company can now opt for a two-tier structure in its articles of association.

The supervisory board and the executive board are two separate bodies. They are both composed of at least three members (natural or legal persons) who cannot be members of the other corporate body. They must both act as collegial bodies and their members cannot be bound by any employment agreement with the company within the framework of their mandate as directors.

Concerning the division of powers, the supervisory board is responsible for strategy and general policy and has all powers reserved by law to the board of directors in a one-tier structure (convening notice of the general meeting, closing of the annual accounts, annual report and special reports, buying of own shares, etc.) and the supervision of the executive board. The supervisory board can validly represent the company within the limits of its powers.

All residual managing powers, including the power of representation of the company with respect thereto, belong to the executive board. 

The articles of association can provide for restrictions to the management and/or representation powers of the executive board (i.e. that certain specific resolutions are to be pre-approved by the supervisory board). These restrictions are, however, not enforceable towards third parties (except if one can prove they knew it). 

Sole director 

A public limited company can be managed by a sole director (only in a one-tier system). The sole director (as well as its successors) can be appointed in the articles of association.
The sole director may be a legal or a natural person (except for listed companies, where it must be a SA/NV with a collegial management body).

The articles of association may grant a veto right to the sole director on resolutions of the shareholders’ meeting relating to amendments to the articles of association, distribution of profits and his/her own dismissal (except if the shareholders resolve to dismiss him/her for proper reasons (motifs légitimes/wettige redenen), such resolution being taken by special majority for amending the articles of association). 

A director in a public limited company is an agent (mandataire/lasthebber) of the company. A director may, but need not, be remunerated. The general meeting of shareholders determines the remuneration of directors, unless the articles of association grant this power to the board of directors.
A director can also be an employee of the company, provided his/her tasks as an employee are separate from his/her duties as a director.

A management company, being a company that contracts with the company to provide the director’s services, is allowed.

The matter of conflict of interest resolution has been made more complex in view of the different forms of governance (one-tier system, two-tier system or sole director) that can now be adopted by a company.

When the SA/NV has opted for a one-tier system, the procedure for conflict of interest is similar to the one prescribed by the former Companies code, provided that an abstention right is now imposed in each public limited company on the director with an opposite interest.

If a director has a direct or indirect personal and conflicting interest of a financial nature in a decision or transaction within the authority of the board of directors, he/she must disclose such interest to the other directors prior to such decision or transaction. If the company has one or more statutory auditors, the director concerned should also inform the auditors of his/her conflicting interest.

The statement from the director and the reasons justifying his/her conflict of interest must be recorded in the minutes of the board meeting. Directors who have a conflicting interest at a board meeting may not participate in discussions of the board regarding the decision or transaction concerned, nor vote on such matter.

In a two-tier system, the resolution of conflicts of interest operates in a different manner depending on whether it takes place at the level of the supervisory board or the executive board. Within the supervisory board, the issue is dealt with in the same way as conflicts of interest within a one-tier system. Where the conflict of interest affects a member of the executive board, the latter will have to refer the matter back to the supervisory board authority which is competent to decide.

If there is only one director, or if all directors are conflicted, the decision will be directly subjected to the general meeting (i.e. the procedure of ad hoc proxyholder is abrogated). If the sole director is also the sole shareholder, he/she can resolve on the conflicting matter.

Directors are personally and severally liable for any loss sustained by the company or by a third party as a result of decisions or transactions which have secured an unlawful financial advantage for them (or one of them) to the prejudice of the company, even if such decisions or transactions took place in accordance with the above-mentioned disclosure rules. The company may request that decisions or transactions which have taken place in breach of the conflict of interest rules be set aside.

Each director must act in the best interests of the company as a whole and not only for its shareholders. The directors must make and implement their decisions in the “corporate interest” of the company. The board of directors has a duty to determine the strategy of the company and to implement such strategy. The board of directors is also required to inform the shareholders in certain circumstances and for specific operations, mainly relating to the company’s share capital.

The board of directors is entitled to do whatever is necessary or useful for the achievement of the corporate purpose of the company, except for certain decisions reserved by law or by the articles of association to the general meeting of shareholders. In particular, the following powers of the general meeting of shareholders cannot be delegated to the board of directors:

• appointment and removal of directors or statutory auditors
• approval of annual accounts and distribution of profits
• liability suits against directors, and
• amendments to the articles of association.

The articles of association may limit the powers granted to the board of directors. Such restrictions, however, may not limit the fundamental powers of the board of directors (for example the power to call a general meeting of shareholders or the preparation of the annual accounts).
Restrictions on the powers of the board are not enforceable against third parties, even if such restrictions have been published in the Belgian Official Journal. 

It is also possible to allocate certain powers of the board of directors to certain individual directors. Such allocation cannot, however, be invoked against third parties, even if such restriction has been published.

A director can be held liable for shortcomings in the implementation of his/her duties, as well as for a breach of the provisions of the CAC or the company’s articles of association.

In the exercise of their mandate, directors must always act in the “best interest” of the company by taking and implementing decisions that serve the company’s “corporate interest”.

Belgian law does not provide for any definition of corporate interest, and case law and doctrine positions range from a “shareholder-oriented” view to a “stakeholder” view under which the interests of employees, customers, suppliers and other creditors, or merely the public at large, are to be considered. As a general rule, it can be stated that the interest of the company as a whole must be served and not only of the company’s shareholder(s).

Under Belgian law, a large part of the cases of directors’ liability apply in the event of bankruptcy. In this context, directors may be accused of having, among others, wrongfully pursued a deficit activity beyond what is reasonable.

In a limited number of cases, the CAC and the Code of Economic Law 1 In the context of a wide-ranging legislative work, the legislator has recast insolvency law through the Law of 11 August 2017 published in the Belgian Official Gazette on 11 September 2017, inserting Book XX “Insolvency of enterprises” in the Code of Economic Law.  impose specific obligations on directors when the company is in financial difficulties. Among the main specific obligations, we can single out the following:

• The alarm bell procedure: the CAC provides for a mandatory procedure in case the company has sustained substantial losses, i.e. in case the net assets of the company are, as a result of losses, reduced to less than half of the capital. The board of directors has an obligation to convene a general meeting of shareholders. If the general meeting of shareholders has not been held within a period of 2 months after the losses have been, or should have been, ascertained, the directors are liable for all losses and damages incurred by third parties, and these losses are presumed to be the result of the fact that the general meeting has not been convened. Directors can give evidence to the contrary.
• The CAC also provides that when serious and concordant facts may jeopardize the continuity of the undertaking, the board of directors is required to deliberate on measures which should be taken to ensure the continuity of economic activity for a minimum period of 12 months.
• In addition, the liability of directors can also be triggered for the failure of their company to pay wage withholding tax (precompte professionnel/bedrijfsvoorheffing) and VAT. Any failure of the director(s) in charge of the daily management to pay wage withholding tax and/or VAT will trigger several liability of the director(s) if it is demonstrated that he/she (they) has (have) committed a fault in running the company. This liability can be extended to other directors whose faults have contributed to such failure.
• The failure to file for bankruptcy and wrongful continuation of a loss-making activity. 

Directors, former directors and any person who is or has been de facto managing the company (i.e. a shadow director) can be held liable in case of insolvency of the company where they have obviously made serious errors that have contributed to the insolvency (e.g. directors entering into obligations which are completely out of proportion with the company’s financial position and which lead to the insolvency of the company). In such a case, directors can be held liable, either severally or jointly and severally, for all or part of the difference between the assets and liabilities and the damage will be presumed to be resulting from the serious errors that have contributed to the insolvency.

In addition, directors could also be held liable for the increase of debt resulting from the belated announcement of insolvency of a company that is in such situation. Such announcement should be done within 1 month following the cessation of payments. 

Book XX of the Economic Law Code now establishes directors’ liability for: (i) manifestly gross error and serious negligence that contributed to the bankruptcy (article XX.225); and (ii) wrongful trading when the directors should have known that there was no prospect of an immediate recovery of the financial situation of the company (article XX.227).

Indeed, a special provision of the Code of Economic Law (article XX.225) provides that, in the event of bankruptcy, the receiver in bankruptcy or an individual creditor may bring a liability suit against the former directors of the company for gross negligence. If the court finds the directors’ gross negligence to have contributed to the bankruptcy, the directors can be forced to assume all or part of the company’s obligations and liabilities. In the event of bankruptcy, directors may also incur several and personal liability for unpaid social contributions. This liability is only triggered when a serious mistake on their part was at the origin of the bankruptcy or if they were previously involved in at least two bankruptcies (or similar situations) where outstanding debts were owed to the social security institutions.

Finally, in the case of bankruptcy, directors or managers may also be held liable (article XX.227 of the Code of Economic Law) when: (i) at any time before the bankruptcy, they knew or ought to have known that there was manifestly no reasonable prospect of maintaining the enterprise or its activities and avoiding bankruptcy, and (ii) the person concerned was a director at the time, and (iii) from that moment on, the person concerned did not act as a normally prudent and careful director would have acted in the same circumstances. By way of exception, it is stipulated that the new liability rule does not apply when the enterprise declared bankrupt is a “small” non-profit organization, international non-profit organization or foundation.

In principle, directors are not personally liable for any obligations of the company. The company is bound by the acts of the board of directors and of individual directors representing the company as well as the managing directors. The company is bound even if such acts are beyond its corporate object, unless the company proves that the third party was aware of this.

There are three main (general) legal grounds on which the liability of directors can be triggered:

• Liability for negligence in management: directors have a personal liability towards the company for management faults and joint and several liability (as a rule) in case they act as a collegial body. The same applies even with regard to third parties in so far as the fault committed is of an extra-contractual nature. In other words, if a director fails to exercise reasonable care in managing the company (“duty of care”), the general meeting of shareholders may decide to sue the director or the board of directors for damage to the company.
• Liability for violation of the CAC or articles of association: directors are jointly and severally liable (even if they do not act as a collegial body) to the company, as well as to third parties, for breaches of the CAC or articles of association.
• Tort law liability: directors are also subjected to article 1382 of the Belgian Civil Code pursuant to which any person that causes a damage to another person is under an obligation to indemnify the other person for the damage it has suffered. In principle, directors are liable on an individual basis. If several directors committed an error, each should view a liability proportionally to his/her fault.

 De facto/shadow directors (administrateur de fait/feitelijke bestuurders) are liable in the same way as statutory directors.

Directors’ liability is now joint even if the directors do not act as a board. A director may however avoid being held liable for another director’s misconduct if he/she was not involved in such misconduct and if he/she has reported it immediately to the relevant corporate body.

Liability suits against directors on the basis of 2:56 CAC can be brought either by the general meeting of shareholders or by an individual shareholder acting on behalf of the company (“derivative suit”). Shareholders not only have the right to see the company managed in a proper way (“duty of care”), they may also expect the rules on conflicts of interest to be strictly observed (“duty of loyalty”).

The CAC introduces a margin of appreciation and confirms that directors, daily managers and persons having de facto management powers are only liable if their acts go beyond the margin of appreciation in which normal, prudent and careful directors, in the same circumstances, could reasonably have deviating views.

Finally, the permanent representative of a company director is severally liable with the company director for the carrying out of its duties as a director.

There are different ways to limit the risks and/or consequences of a liability claim against a director – it being, however, understood that the criminal liability cannot be waived or limited: only the financial consequences thereof can be covered pursuant to one of a number of liability limitation means.

Corporate discharge

During the shareholders’ annual meeting, the company’s shareholders decide whether or not to approve the board of directors’ activity during the previous year. Provided the shareholders’ meeting agrees with and approves the company’s management by the board, directors will be granted with a discharge for the exercise of their corporate mandate during the considered (previous) year. The scope of such discharge is however: (i) limited and results in preclusion of any liability claim by the company itself against its directors; and (ii) not enforceable against third parties (including creditors) whose liability claims are not limited nor waived thereby.

Directors’ and officers’ liability insurance

All directors’ liabilities vis à vis third parties resulting from faults other than intentional faults or acts of fraud can be specifically insured (the company being allowed to take such insurance, and pay the premium, for the benefit of its directors).  

Time barring of claims

All claims against directors with respect to violation of the CAC or articles of association become barred after 5 years dating from these errors or, in the case that they have been maliciously hidden, dating from their discovery. The resignation of directors does not prevent shareholders from invoking the directors’ liability for management errors committed before their resignation.  

Cap on damages

One of the most significant innovations of the CAC is the introduction of a cap on the damage regarding the liability of directors for management error. The limitation of liability depends on the size of the company (only the total balance sheet and turnover are considered, not the number of workers): maximum liability between EUR 125,000 and EUR 12 million for all directors together.
This liability cap is not applicable in the case of: (i) minor misconduct (faute légère/lichte fout) of a recurrent nature; (ii) serious misconduct (faute grave/zware fout); (iii) fraudulent intent; (iv) serious tax fraud; and (v) the special liability director’s liability for social security, income tax or VAT debts. 

Warranty clauses 

Warranty clauses are prohibited (e.g. clauses whereby the company undertakes to pay all costs and financial consequences in case of liability are not permitted). However, it still remains possible for shareholders/the mother company to guarantee their workers appointed as directors of a subsidiary.

Disassociation

Pursuant the CAC, directors are jointly and severally responsible towards either the company or third parties for all damages and interests resulting from violation of the CAC or articles of association of the company.

A director may discharge himself/herself of this joint and several liability if he/she fulfils the following four conditions:

• the director must not have participated in the infringement
• no fault can be personally attributed to the director
• the director did not have any knowledge
• the director reported the fault to all the members of the board of directors (or, in a two-tier system, to the supervisory board).

The COVID-19 crisis has inevitably had a significant impact on several areas of the business sector and is putting an unprecedented pressure on the management of companies. Directors are obliged to take into account a whole range of considerations and make certain decisions, most of the time in a hurry. While shareholders in general meetings only have specific and limited powers conferred on them by virtue of the law or the articles of association, the management body is responsible for all other matters and directors are, as a result, the main decision-making body of the company. Therefore, directors bear the main responsibility for managing the company’s response to the current pandemic. 

Health and Safety

Directors should take any measure needed to protect the health and wellbeing of their employees, customers, business partners and the public at large. It is crucial that directors verify and strictly comply with all applicable safety measures. Directors should also pay attention to remain constantly aware of any COVID-19 related changes in applicable law and regulations. 

Risks

Directors must analyze the risks that the spread of the disease may entail for both the company and its stakeholders so that risk management can be put in place. Such risk management is necessary for the development of appropriate prevention and security policies, with respect to employees, customers and business partners.

Solvency

Directors must consider possible changes in the future financial stability, resource availability, cash flow, solvency and general continuity of the business. Where appropriate, the company’s short- and long-term strategy, financing policy and dividend policy will need to be reviewed in the light of a possible significant reduction in business activity, possible loss of financing and disruptions in the supply chain.

In certain circumstances, the board of directors must take specific measures. When the company’s net assets are, as a result of losses, reduced to less than half of the capital, the board of directors must draw up a special report and must convene a general meeting of shareholders to resolve on special measures to be taken or to decide on whether or not to wind up the company.
Directors should be careful not to continue a loss-making activity that would appear unreasonable to normally diligent and prudent directors.

In particular and in a nutshell, in an insolvency scenario, a director may be held liable for: (i) the absence or the delay in filing for bankruptcy; (ii) his/her gross and manifest negligence having contributed to bankruptcy (for example, conducting a commercial activity without having the required financial means); (iii) wrongful trading (in the event of bankruptcy of a company and shortfall of its assets); and (iv) failure to pay the company tax prepayments or VAT in a timely manner.

In considering the issues noted above, directors need to be aware of the measures that have been announced by government authorities to assist companies through the crisis and determine which ones are relevant to the company. 

In Belgium, the most relevant measures for companies include:

• emergency finance facilities for SMEs and large businesses 
• importation of goods aimed to fight covid-19 are exempt from import duties and VAT until 31 December 2021.  
• relaxation of the rules governing the holding of general meetings (remote voting and/or power of attorney) and boards of directors (decide all decisions unanimously in writing and deliberate and decide by means of electronic communication allowing discussion among directors (e.g. via tele- or videoconferences)). Those rules were made permanent by the law of December 20^th 2020.
• by the law of March 21^st 2021, the legislator has facilitated access to judicial reorganization procedures (JRP) (“procedure van gerechtelijke reorganisatie” / “procedure de reorganization judiciaire”) for companies in difficulty. Among others, the procedure for accessing JRP has been made more flexible and a confidential pre-JRP phase (a “prepackaged” JRP) has been set up.

As a general rule, directors’ duties remain in place as before and as set out in the remainder of this guide. The key duty is to foster the success of the company for the benefit of its stakeholders as a whole, and that should be the guiding principle for all actions taken by directors.

Members of the board of directors, individually or collectively, must take all reasonable actions to ensure the continuity of the company.

Directors’ guidelines should remain the same: business decisions must be taken in the best interest of the company, i.e. the long-term interest of shareholders, taking into account the interests of all stakeholders including employees, customers, creditors and suppliers.

The board of directors must be convened as often as the interest of the company requires it. Given the important disruptive impact of the COVID-19 outbreak, the board shall need to be convened to adopt mitigating measures in the interest of all stakeholders, including close scrutiny of the company’s liquidity.