Criminal liability of managing directors

Last update 03.11.2020

The managing director is liable for the management of the company. This liability entails different categories:

  • criminal liability: infringement of a legal provision punishable by fines or imprisonment;
  • civil liability;
  • administrative liability.

Each of these types of liability is governed by its own specific terms of application. The facts underlying an instance of misconduct may sometimes fall within the remit of more than one liability regime.

The generic concept of managing director varies depending on the type of company. The liability regime that applies to managing directors depends on the legal form of the company.

The main aspects of a managing director's criminal liability with regard to the law applicable to commercial companies and the commercial code are presented below.

Criminal sanctions are provided for in numerous sector-specific regulations: environment, occupational health and safety, food safety, financial services.

Who is concerned

In principle, any person who has suffered personal and direct harm caused by a managing director's criminally sanctioned behaviour.

Prerequisites

The criminal liability of managing directors can be invoked:

  • if the victim files a complaint with:
    • the police; or
    • the public prosecutor's office at the district court; or
    • the investigating judge with a civil claim for damages. By filing a civil claim, the victim becomes a party to the lawsuit;
  • on the initiative of the public prosecutor's office.

A complaint may be dismissed without further action by the public prosecutor's office, which has the discretion to decide whether to take legal action.

In this case, the plaintiff can directly summon the managing director before the criminal courts.

Costs

The victim's complaint does not incur any costs. However, the victim must pay the fees for his or her lawyer, if any.

In the case of a direct summons, the court may require a sum of money to cover costs.

How to proceed

Criminal offences against the law on commercial companies

Abuse of company assets

A managing director is deemed to have committed an abuse of company assets if they use the company's assets or credit in bad faith and in a manner contrary to the company's interest:
  • for personal purposes; or
  • to favour another company or enterprise in which they have a direct or indirect interest.
Example: the managing director uses company funds to finance private travel or family holidays.

The guilty director risks imprisonment and/or a fine.

An abuse of company assets must be brought to court by the company. They become statute barred after 5 years.

Abuse of powers and votes

A managing director is guilty of an abuse of powers and votes if they use powers of attorney or a delegation of powers granted to them:

  • for personal purposes and contrary to the corporate interest; or
  • to favour another company in which he or she has a direct or indirect interest.

Example: certain partners of Company A give power of attorney to the managing director who then has an absolute majority of the votes cast. The director uses this opportunity to commit Company A to another Company B in which he or she is the only partner without Company A gaining any advantage.

Any abuses of power and vote must be brought to court by the company.

The guilty director risks imprisonment and/or a fine.

Failure to call a general meeting

A managing director who fails to call a general meeting within 3 weeks of a request made to them can be fined.

Cases for failure to call a general meeting are brought by the partners or the shareholders.

Miscellaneous offences relating to the accounts

Managers or directors risk a fine if they have not:

  • submitted to the general meeting, within 6 months of the end of the financial year:
    • the annual accounts: these accounts give an accurate overview of the financial situation of the company;
    • the consolidated accounts: these accounts group together and present in a single document the results of all companies in the case of subsidiaries or holdings in other companies;
    • the management report: internal document which presents a true and fair view of the company;
    • the certificate issued by the person in charge of the audit.
  • published these documents and the other documents and information required by law;
  • kept a register containing the registered shares.

A managing director who forges accounts, agreements or signatures with fraudulent intent risks imprisonment and a fine.

Various offences regarding the capital

The managing director risks imprisonment and/or a fine in the case of:

  • simulation of non-existent subscriptions; or
  • publication of such information; or
  • publication of information about persons in relation with the company; or
  • fraudulent distribution of interest or dividends; or
  • fraudulent payments or capital transactions; or
  • use of forged documents.

Criminal offences under the Commercial Code

Negligent bankruptcy

The question of negligent bankruptcy arises exclusively in the context of a bankruptcy.

The managing director is declared negligent bankrupter if:

  • their personal expenditure are deemed excessive; or
  • they have spent large sums of money in gambling, or in fictitious stock exchange transactions; or
  • with the intention of delaying their bankruptcy, they:
    • made purchases to resell at a loss; or
    • engaged in ruinous borrowing to raise money; or
  • cannot justify the use of assets and funds; or
  • if, after the cessation of payments, they have paid or favoured a creditor to the detriment of the pool of creditors.

The following persons shall be sentenced to the same penalties as the negligent bankrupter:

  • those who, in the interest of the bankrupt person, have removed, hidden or concealed all or part of their movable or immovable property;
  • those who have fraudulently presented supposed or exaggerated claims in the bankruptcy;
  • the trustee who has been guilty of misappropriation in their management.
A managing director manager may also be declared negligent bankrupter if they:
  • have contracted for the account of others, without receiving any value in exchange; or
  • are declared bankrupt, without having fulfilled the obligations of a previous scheme of composition; or
  • have omitted to notify the RCS on the matrimonial regime following a marriage; or
  • have not made an admission of cessation of payments within the time limit; or
  • have been absent without authorisation from the examining magistrate; or
  • have not kept their accounts in accordance with the law.

The managers of public limited companies (SA) may still be sentenced as a negligent bankrupter if they:

  • do not provide the information requested by the examining magistrate or the trustee; or
  • give inaccurate information.

Fraudulent bankruptcy

The managing director is declared fraudulent bankrupter if they:

  • remove company accounts or other accounting documents, or fraudulently alter their content; or
  • misappropriate or conceal part of their assets; or
  • fraudulently acknowledge that they owe amounts that are not owed.

The guilty parties may be sentenced to a term of imprisonment.

Bankruptcy

The bankruptcy of a trader as such is not punishable by imprisonment or fines.

However, the bankrupt person or the de jure or de facto manager may be deprived of the right to, whether directly or through an intermediary:

  • carry out a commercial activity; or
  • hold a position as director, manager, auditor, auditor of companies; or
  • hold any position conferring the power to bind a company.

The prohibition is obligatorily pronounced against a manager convicted of reckless or fraudulent bankruptcy.

Criminal liability and unfair commercial practices

Breach of trust

A breach of trust is a fraudulent act. It may involve the dissipation of goods with the responsibility of returning them. This offence is punishable by imprisonment and a fine.

Fraud or deception

A fraud or deception is a fraudulent act. This includes the act of appropriating property under false pretences or using fraudulent schemes to deceive the person, abuse his or her credulity or create false hopes. This offence is punishable by imprisonment and a fine.

Infringements of consumer law

Many infringements of consumer law are subject to criminal prosecution. They concern offences relating to:

  • consumer information on prices;
  • unfair and aggressive commercial practices;
  • contracts concluded with consumers;
  • timeshare contracts;
  • misconduct in the field of credit;
  • real estate contracts and misconduct in relation with the Financial Sector Supervisory Commission (Commission de surveillance du secteur financier - CSSF).

Exceptional cases of "vicarious" criminal liability

In principle, in criminal law, a person can only be held responsible for his or her own actions.

However, the managing director may be held liable for the actions of other persons such as employees.

Example:

In craft and industrial enterprises subject to regulations enacted in the interests of public health or safety or environmental protection, the criminal liability of managing directors may be incurred. In fact, they are personally liable for the conditions and mode of operation of their businesses. Thus, following an incident caused by an employee, managing directors may be declared liable for failure to exercise vigilance or to set up an adequate organisation.

A delegation of authority does not automatically relieve the managing director of criminal liability. In order to determine the responsibilities, the judge takes into account sufficient authority and autonomy as well as the means necessary for proper compliance with the rules relating to the activity in question.

Criminal liability of a legal person

Like its managing directors, the company can be prosecuted and convicted under criminal law.

All legal persons are concerned, except the State and the communes.

Criminal liability of a legal person does not exclude that of natural persons who may be the authors or accomplices to the same offence. Both the legal and the natural person may be charged at the same time.

Legal persons may incur the following criminal (peine criminelle) and correctional (peine correctionnelle) sanctions:

Relations with the administration and criminal sanctions

Liability towards Social Security

Social security legislation provides for a number of sanctions against the management or other employers that fail to comply with certain obligations.

Firstly there are fines concerning order, which penalise managing directors and other employers who do not comply with, or who are late in complying with the legal, regulatory or statutory obligations imposed on them. Such fines may not exceed EUR 2,500.

Example:

Managing directors who report wages late or who do not pay social security contributions on time.

There are criminal sanctions if the managing director disregards the law or receives benefits fraudulently.

For example, the head of a company or the employer is punished by a fine of between EUR 251 and EUR 6,250 if they:

  • knowingly:
    • excluded, by agreements or work regulations, the total or partial application of legal provisions to the detriment of insured persons; or
    • restricted the freedom of these insured persons if they accept or exercise an honorary function conferred on them by law;
  • have knowingly made deductions from the insured persons' salaries which are not authorised by law;
  • have not used any deductions made for insurance purposes. In this case, the manager may risk imprisonment if they acted with fraudulent intent.

A managing director who fraudulently induces the social security institutions to provide benefits, a pension, relief or other benefits which were not due or only partly due is punished by imprisonment and a fine. Any attempt to commit this type of offence is also punishable by imprisonment and a fine.

About the authorisation of establishment

In the event of unauthorised operation of a business, the closure of the establishment is ordered and the managing director is held criminally liable in several respects.

Where the managing director has been involved in a bankruptcy or judicial liquidation, without this affecting their professional integrity, the granting of a new business permit may be made conditional on completion of the accelerated training provided by the competent employers' chamber.

In the event of infringement of the legal provisions relating to classified establishments, the managing director shall incur criminal liability.

Unauthorised operation of an establishment or illegal modification of an establishment shall result in the partial or total closure of the establishment.

The practice of a profession in an unauthorised establishment is punishable by imprisonment and/or a fine.

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