The SRL (private limited company) is the most popular legal form in Belgium. While it offers, in principle, a separation between the company's assets and the director's, this protection is not absolute. The Companies and Associations Code (CSA), in force since 1 May 2019, sets out precisely the situations in which an SRL director can face personal liability. This article details director liability at a Belgian SRL: the situations that trigger it, the liability caps and the protective measures available.
The Principle: Limited Liability
The separation of assets
The core principle of the SRL is the separation between the company's assets and those of the shareholder/director. If the SRL runs into financial difficulty:
- The company's creditors can, in principle, only pursue the company's assets
- The shareholder only risks their capital contribution (the amounts invested)
- The director is not personally liable for the company's debts
The limits of this protection
However, this protection has important exceptions. Director liability can be personally engaged in several situations set out in the CSA, the Civil Code and other special laws.
Types of Director Liability
1. Liability for mismanagement (article 2:56 of the CSA)
The director is liable to the company for faults committed in carrying out their duties. This liability is assessed against the standard of a normally prudent and diligent director placed in the same circumstances.
Examples of mismanagement:
- Manifestly unreasonable investment decisions
- Failure to follow decision-making procedures (the articles of association, the general meeting)
- Lack of oversight of the company's activities
- Failing to follow the auditor's or accountant's recommendations
- Negligence in keeping the accounts
- Failing to take out mandatory insurance
Who can bring a claim?
- The company itself (a corporate action, decided by the general meeting)
- One or more shareholders holding 10% of the votes or shares representing 10% of the capital (a minority action, article 2:57, §3 of the CSA)
- The insolvency receiver in the event of bankruptcy
2. Liability for breaching the CSA or the articles of association (article 2:56, first paragraph)
The director is liable for damage resulting from a breach of the CSA or the company's articles of association. Unlike ordinary mismanagement, this liability is joint and several among all directors.
Examples:
- Failing to convene the annual general meeting
- Distributing dividends in breach of the balance-sheet and liquidity tests (article 5:141 of the CSA)
- Failing to follow the conflict-of-interest procedure (article 5:76 of the CSA)
- Failing to file the annual accounts with the National Bank of Belgium (BNB)
- Failing to keep the register of shares
3. The balance-sheet test and the liquidity test (articles 5:141 to 5:143 of the CSA)
Under the CSA, profit distributions by an SRL are subject to a double test:
The net-asset test (balance-sheet test):
The company's net assets must not become negative or fall below the amount of the non-distributable part of equity.
The liquidity test:
The management body must verify that the company will be able to pay its debts within the 12 months following the distribution. This assessment is recorded in a special report.
Liability in the event of an unlawful distribution:
- Directors are jointly and severally liable to the company and third parties
- They must repay the amounts distributed if the distribution caused harm
- The recipients of the distribution (shareholders) must repay the amounts received if they knew, or should have known, of the irregularity
4. Founders' liability: an inadequate financial plan (article 5:3 of the CSA)
When an SRL is set up, the founders must draw up a financial plan covering the first two years of activity. If the company goes bankrupt within 3 years of incorporation and the financial plan was manifestly inadequate, the founders are personally and jointly and severally liable for the company's debts.
Elements the financial plan must contain (article 5:4 of the CSA):
- A description of the planned activity
- An overview of all sources of funding (contributions, loans, credit)
- An opening balance sheet
- Projected income statements for 2 years
- A budget of income and expenditure for 2 years
- A description of the assumptions used to estimate turnover and profitability
5. Liability for tax and social security debts
NSSO (ONSS) contributions:
Article 265 of the Income Tax Code and article 50 of the ONSS law provide that directors can be held personally and jointly and severally liable for the payment of NSSO contributions and VAT if the non-payment results from mismanagement.
A director who repeatedly fails to pay NSSO contributions or withholding tax faces director liability that is almost automatic and can be personally pursued.
Presumption of fault: if the company has been involved in at least 2 bankruptcies or liquidations involving NSSO debts, there is a rebuttable presumption of fault on the director's part.
6. Liability for continuing a loss-making activity (article XX.225 of the CDE)
In the event of bankruptcy, directors can be ordered to bear all or part of the shortfall if the court finds they continued a manifestly loss-making activity while knowing (or being expected to know) that recovery was impossible.
Signs of wrongfully continuing an activity:
- Cumulative losses over several financial years with no recovery plan
- A continuous rise in supplier and social security debts
- Inability to pay wages
- Credit refused by every bank
- Failure to file for bankruptcy within a month of ceasing payments
7. Conflicts of interest (article 5:76 of the CSA)
When a director has a direct or indirect financial interest that conflicts with that of the company, they must:
- Inform the other directors before the deliberation
- Refrain from taking part in the deliberation and the vote
- Have the declaration recorded in the minutes
- Inform the auditor (if there is one)
If this procedure is not followed, the company or any harmed third party can seek the annulment of the decision and damages.
If an SRL has a sole director who has a conflict of interest, the decision must be submitted to the general meeting of shareholders.
Liability Caps (Article 2:57 of the CSA)
The cap system
The CSA introduced a cap on director liability, based on the size of the company:
| Company size | Average turnover (last 3 financial years) | Average balance-sheet total | Cap |
|---|---|---|---|
| Micro/small | < EUR 700,000 | < EUR 350,000 | EUR 125,000 |
| Small | EUR 700,000 – 9 million | EUR 350,000 – 4.5 million | EUR 250,000 |
| Medium | EUR 9 – 50 million | EUR 4.5 – 43 million | EUR 1,000,000 |
| Large | > EUR 50 million | > EUR 43 million | EUR 3,000,000 |
| Very large | – | > EUR 1 billion (balance sheet) | EUR 12,000,000 |
Exceptions to the cap
The cap does not apply in the following cases:
- Habitual minor faults (repeating the same fault)
- Gross negligence
- Fraudulent intent or deceit
- Tax and social security debts (NSSO, VAT, withholding tax)
- Founders' liability (an inadequate financial plan)
In practice, for a typical Belgian SME, the EUR 125,000 or EUR 250,000 cap applies in the usual cases of unintentional mismanagement.
Directors & Officers (D&O) Liability Insurance
Principle
Directors & Officers (D&O) insurance covers a director's personal liability for mismanagement. It is strongly recommended for any SRL director.
Typical cover
- Legal defence costs (lawyers' fees, procedural costs)
- Damages charged to the director
- Costs of representation before the courts
- Cover for current and former directors
Common exclusions
- Intentional fault or deceit
- Fraud
- Personal benefits obtained unlawfully
- Criminal fines
Indicative cost
| SRL size | Annual D&O premium |
|---|---|
| Micro-SRL (turnover < EUR 500,000) | EUR 300 – 800 |
| Small SRL (turnover EUR 500,000 – 2 million) | EUR 800 – 2,000 |
| Medium SRL (turnover EUR 2 – 10 million) | EUR 2,000 – 5,000 |
| Large SRL (turnover > EUR 10 million) | EUR 5,000 – 20,000 |
Best Practices to Limit Risk
Good governance is the most effective way to reduce director liability in practice.
Governance
- Keep detailed minutes of every meeting of the management body (document decisions, reasons and votes)
- Strictly follow the conflict-of-interest procedure (article 5:76 of the CSA)
- Carry out the liquidity test before any profit distribution and keep the written report
- Consult experts (lawyer, accountant, auditor) for important decisions
Accounting and finance
- File the annual accounts on time (7 months after the financial year-end, then publication with the BNB within 30 days of approval)
- Pay NSSO contributions and VAT as a priority: personal liability for these debts is almost automatic in the event of repeated non-payment
- Monitor financial indicators: solvency ratio, cash position, working capital
- Draw up a solid financial plan when the company is set up and keep it carefully
In the event of difficulty
- React quickly: do not continue a manifestly loss-making activity
- Document your recovery efforts: savings plans, funding searches, negotiations with creditors
- Consult a specialised lawyer at the first signs of trouble
- Consider judicial reorganisation (PRJ) rather than waiting for bankruptcy
Limitation Periods for Liability Claims
| Type of action | Limitation period |
|---|---|
| Corporate action (by the company) | 5 years from the fault |
| Minority action (by shareholders) | 5 years from the fault |
| Third-party action (creditors) | 5 years from the fault |
| Founders' liability action | 5 years from the fault (bankruptcy within 3 years) |
| Insolvency receiver's action (wrongful continuation of activity) | 5 years from the bankruptcy |
| Tax and social security debts | Per tax and social security limitation periods |
Conclusion
The limited liability of the SRL is not an absolute shield for the director. The CSA sets out many situations in which director liability at a Belgian SRL can become personal: mismanagement, breach of the articles of association, unlawful profit distribution, an inadequate financial plan, an undeclared conflict of interest, or continuing a loss-making activity. The liability caps introduced by the CSA offer a degree of security, but they do not apply in cases of gross negligence or fraud. Taking out D&O insurance, rigorously following governance procedures, and getting support from professionals (a lawyer, an ITAA accountant, an IRE company auditor) are the best protections for the director of a Belgian SRL.
