Trustee may ignore discharge of directors
December 2021 – If a director commits a breach of the law, he or she may be held personally liable for the damage caused. The company may grant him a discharge in this respect, in which case the director's liability is, so to speak, covered, at least vis-à-vis the company. But is the receiver considered a third party or does he represent the company?
Liability of the director
In principle, a director can be held personally liable in four situations:
he has committed a serious fault that contributed to the bankruptcy ;
he has not carefully executed his mission;
he has committed infringements of the law;
he has continued the company's activity when it was doomed to bankruptcy (wrongful trading).
Discharge
Article 528 of the former Companies Code, now Article 2:56 of the Companies and Associations Code, states that directors are jointly and severally liable to the company and to third parties for any damages resulting from breaches of the law.
The company may, however, grant discharge to the director. In principle, the general meeting decides separately on the discharge of directors and auditors after the approval of the accounts.
However, this discharge only applies to the company: third parties may at any time bring an action for director's liability. In the event of discharge, the company can only claim damages on the basis of so-called extra-contractual liability (e.g. in the event of theft from the company).
Furthermore, the discharge only relates to the past financial year and is only valid if the annual accounts have been properly drawn up.
Facts
On 29 September 2013, a company X sells its publishing houses. On 30 May 2014, it grants discharge to its directors for the financial year 2014. It is declared bankrupt on 14 October 2014.
The receiver considers that serious misconduct has been committed and therefore invokes Article 528 of the CSA.
On 3 December 2018, the Ghent Court rejected the trustee's claim. It considered that when the trustee sues third parties or administrators, he is bringing a social action and not an action on behalf of individual creditors. In other words, the Court considers that in such cases the receiver represents the company.
For this reason, it concludes that the discharge granted by the general meeting can be set up against the receiver both on the basis of Articles 527 CSA (ordinary management faults) and 528 CSA (breaches of the Code) and on the basis of Article 1382 CSA (general rule of prudence).
Cassation
On 18 June 2021, the Court of Cassation overturned this decision. It considers that in the case of a bankruptcy, the judge entrusts the curator with the task of realising the bankrupt's assets and distributing the proceeds. In doing so, the receiver exercises the common rights of the creditors.
Consequently, when he brings an action on the basis of Article 528 of the Companies Act (now Article 2:56 of the CSA), the receiver also acts on behalf of the creditors.
It follows from this judgment that the effect of the discharge is often much more limited than one might think at first sight.
