The new Civil Code has made a big difference in the life of companies. The Good Finance Law Firm reports on changes in the responsibilities of corporate executives on our blog.
One of the most important things to know is that there are two responsibilities of senior executives: towards the company and third parties. It is important to emphasize that it is only in the latter case (ie vis-à-vis third parties) that the legal regulation of the liability of senior officials changes significantly in the New Civil Code.
Let’s look at the regulation of two cases in the New Civil Code:
I. RESPONSIBILITIES OF THE CORPORATE OFFICERS TO THE COMPANY
3:24. § [Responsibility of the Chief Executive]
The senior official is liable to the legal person for any damage caused to the legal person (the company) in the course of its management activities in accordance with the rules of liability for breach of contract.
Leaders can make dozens of decisions a day. In most cases, they do not have the opportunity to consider every decision 100%, to read every contract. Therefore, it is almost inevitable that they make a mistake. And if that happens, it is up to the owner to claim compensation for the damage (unless the driver, according to a rule to be described below) excuses himself).
There are as many types of damage caused by senior executives as there are different types of companies, so here are just a few examples:
· The Executive will not make / modify the lease with due diligence.
· The Chief Executive does not take into account the fact that he / she cannot enter into a contract with a non-association municipality under the EU grant agreement.
· The executive officer signs a contract that obliges the company to pay unreasonably high penalties.
· In the carrier, an employee who has an accident due to an inadequate tire is claiming damages.
II. RESPONSIBILITIES OF LEADING OFFICERS TO THIRD PARTIES
6: 541st § [Liability for Damage to the Executive Officer]
If the senior official of the legal person causes damage to a third party in connection with this legal relationship, the senior official shall be jointly and severally liable with the legal person against the injured party.
Among the damage caused to third parties, the New Civil Code is first. mention should be made of a completely new provision which makes it possible for the injured party to pursue a claim directly against the chief executive officer not only with the company. This means that, in the event of a judgment of the court, the damages awarded will be recoverable from all the private property of either the company or the executive.
3: 118th § [Liability of the Chief Executive to Third Persons] If the company is dissolved without legal successor, creditors may assert claims against the chief executive officers of the company for non-contractual liability up to the amount of their outstanding claims, if the chief executive officer after its establishment, it did not take into account the interests of its creditors.
The rules on third-party liability should therefore also apply where, in the event of a situation of insolvency, the principal fails to take into account the interests of creditors. This regulation was also included in the current Civil Code, so it does not bring any novelty (perhaps the former rigidity, which prescribes the “primacy” of the interests of creditors).
Here are some examples of third-party damage caused by senior executives:
· Injury to third parties in the event of a traffic accident.
· Any non-contractual damage caused to a non-contract customer, supplier, customer, employee (eg snow on a potential customer’s car at the site).
III. EXEMPTION FROM LIABILITY
The good news is that there is an exemption, but the bad news is that the exemption can only be applied to a slightly narrower scope of damages (significantly narrower than under the old Civil Code).
A manager can only be legally exempt if he proves that
· Outside the scope of its control, and
Due to circumstances unforeseeable at the time of the conclusion of the contract, and
· It was not expected that the circumstance would be avoided or damage remedied.
It is important that these three conditions must be met at the same time in order to be exempt from liability, which means that it is only in this circle that you can only save yourself.
It is also important that the new Civil Code. he does not speak about the responsibility of the chief executive officer, from which it can be concluded that the new regulation does not extend the liability rules applicable to executive officers to the chief executive officers. Their liability is governed by the rules of liability contained in their employment contract. However, it is worth noting that the jurisprudence of the courts may in the future impose stricter conditions in a given matter.
ARC. EXPECTED TRENDS
The New Civil Code. The following trends are expected as a result of tightening:
· There will be an increase in the number of lawsuits in which the injured party sues (in addition to the company).
· There will also be an increase in the number of lawsuits in which the company will sue the outgoing senior executive for previous decisions.
· More and more senior executives will be asking the company to be exempt, that is, to exempt them from compensation for damage to the company. However, this solution does not provide full security for senior executives, as it must be liable for damage to third parties and if the company has been guilty of insolvency, out of its own assets.
· Many people will take advantage of trust management and will entrust specialized firms (or non-commercial individuals) with the management of their private assets. Such assets will no longer be the property of the executive officer, and therefore no claim for damages can be easily enforced.
· There will be a significant increase in the number of third party liability insurance. This solution compensates both the company and third parties for damage, and even covers the legal protection costs of senior officials from the outset of the proceedings, and reimburses the company for amounts paid by the company in place of its director. This also means that the company can pass on such risks to an insurer. Insurers have begun to increase price competition due to the increased demand in the market, so such a solution may be optimal from the smallest to the largest.
V. OUR OPINION ON MANAGEMENT OFFICERS ‘LIABILITY
Liability for contractual damage has not changed significantly, while the issue of exoneration has become somewhat narrower, but the issue will be dominated by case law.
There is indeed increased liability for non-contractual damage, but this issue is not expected to be a common problem for executives.
In our opinion, the New Civil Code. The potential impact of the rules introduced by the Act on a particular executive officer or on a particular company must always be examined individually. It is only after a complex examination that a solution can be proposed that is acceptable to both the executive officer and the company.
It is of paramount importance that, if it has not been done so far, a written contract is drawn up between the chief executive officer and the company. It is a common mistake that the parties fail to do so. If you already have such a contract, we strongly recommend that you review it in order to comply with the New Civil Code in all respects. provisions. We also recommend starting negotiations on the so-called discharge statement (waiver), which may be in the form of a separate statement or an amendment to the contract between the parties.
In addition to the above, we believe that concluding executive liability insurance can be a significant mitigation for all senior executives and companies.