Personal liability of a board of directors member

The actions of a board of directors on behalf of a legal entity are normally attributed to the company and are considered as the company’s actions (by attribution). As long as the board of directors complies with its rights and obligations and acts within the limitations of its powers, it is not possible to hold the board members personally liable. In exceptional cases, the conduct of the board of directors is not attributed to that of the company and the board of directors is held personally liable. If a board member violates their duty as a corporate body and thereby damages the company, a shareholder or a creditor, the board of directors must be held personally liable. For the personal liability of a board of directors to apply, the general liability requirements must be met cumulatively. It is the responsibility of the injured party to prove the existence of these conditions. If you need assistance or legal advice, the lawyers of Teichmann International in St. Gallen, Zurich and Frauenfeld will be happy to help.

Here, the four liability requirements, which must be fulfilled cumulatively, are discussed.

BREACH OF DUTY

As a first requirement, the board of directors must have breached its duty. Such a duty arises from the law, the statutes or the resolutions of the company. Art. 716a Code of Obligations lists the non-transferable and indispensable duties of the board of directors. These central duties include, in particular, the overall management and organization of the company, financial planning or the appointment of the management. Further duties are listed in Art. 717 CO.

DAMAGE

The breach of duty must result in damage. According to the theory of difference, damage is the difference between the state of assets excluding the damaging event and the state of assets in light of the damaging event. In most cases, the damage results from the unjustified delay of the legal entity's bankruptcy. Proving the existence of damage and its amount can be complicated, as the state of assets without the damaging event can only be calculated hypothetically and cannot be based on certainty.

ADEQUANCE

There must be an adequate causal connection between the breach of duty and the damage suffered. This is the case if the conduct of the board of directors, following the normal course of events and general experience of life, is suited to cause the damage.

DEBT

The final requirement is fault. According to the objective standard, fault exists if the board of directors acted differently from that which may be expected of a corporate body in the same position according to objective criteria. In principle, the board of directors is liable for any fault, thus also for slight negligence. Excluded from the personal liability of a board of directors is the liability for wrong decisions. The board of directors must be allowed to take risks. However, it must be demonstrable that respective decision was clarified and made with due care. If this is the case, the board of directors has not violated its duty of care and there is no liability requirement. The board of directors is therefore not liable for taking risks that turned out to be a wrong decision, if the decision was taken with all due care.

If you have further questions regarding the personal liability of board members or if you need legal advice, the Teichmann International team in St. Gallen, Zurich and Frauenfeld is at your disposal and will advise you with the highest competence.