Types of breaches: management fault and breach of bylaws or CSA
The Code of Companies and Associations (CSA) establishes two types of breaches for directors: (i) management fault and (ii) breach of bylaws or the CSA.
Directors should be aware of these responsibilities to avoid committing mistakes that could impact their management and reputation
A. Examples of management faults
- Risky investments
- Disadvantageous contracts for the legal entity
- Delay in filing financial statements or tax declarations
- Negligence in supervising daily management delegates or accountants
- Allowing non-repayable financial withdrawals by a financially troubled director
B. Examples of breaches of bylaws or CSA
- Exceeding the legal entity’s social purpose
- Non-compliance with CSA provisions in case of conflict of interest
- Abandonment of powers by the Board of Directors
Differences between management fault and breach of bylaws and CSA
The victim of a management fault is the legal entity, while the victim of a breach of bylaws or CSA can be the legal entity or third parties.
Additionally, liability for management fault can be joint or individual, whereas liability for breach of bylaws or CSA is always joint
Similarities between management fault and breach of bylaws and CSA
Directors can escape joint liability by proving they did not participate in the fault and reporting it. Directors’ liability is limited to gross negligence, except for certain specific situations.
Liability is also capped at amounts ranging from 125,000 to 12 million euros, depending on various criteria.
Lastly, the statute of limitations for management fault and breach of bylaws or CSA is five years from the commission of the fault or its discovery in case of fraudulent intent.