Shareholder Liability

The ongoing economic crisis has prompted an intensified search for persons who can be held liable for companies' debts. In this context, shareholder liability is a cause for particular concern. This article provides a brief overview of the various grounds for shareholder liability under Belgian corporate law.

General rule
As a rule, shareholders cannot be held liable for the debts of limited-liability companies, such as an SA/NV or an SPRL/BVBA. Indeed, each company is a separate legal entity, and the shareholders' liability is in principle limited to their contribution to the company's share capital.

Founders' liability
Pursuant to the Company Code, founders are jointly liable for ensuring that the minimum statutorily required share capital is met and paid upon incorporation of the company. Moreover, for an SPRL/BVBA, if the sole founder is a legal entity, it shall be held jointly liable for the company's debts until a second shareholder enters the company.

The founders may also be held jointly liable for all or some of the company's debts if (i) the company is declared bankrupt within three years following the date of its incorporation and, (ii) upon incorporation, the subscribed capital was manifestly insufficient to exercise the company's activities for a period of two years.

Sole shareholder's liability
The Company Code treats with suspicion limited liability companies having only one shareholder, and provides specific grounds for liability. In an SA/NV, the sole shareholder is jointly liable for all debts of the company if, within one year after all shares were consolidated in the hands of this shareholder, (i) no new shareholder has joined the company or (ii) the company has not been converted into an SPRL/BVBA or (iii) the company has not been wound up. A similar provision exists for the SPRL/BVBA.

Liability in tort
It is generally accepted that shareholders, like other persons, can be held liable for damage under general rules of tort law (Article 1382 of the Civil Code). For example, in theory, shareholders can be held individually liable for manifest abuse of their voting rights or an unlawful distribution of the company's funds or assets.

However, in practice, there are very few examples in the case law of shareholders being held liable in tort. Indeed, it is very difficult to prove a causal link between the actions of a specific shareholder and the damage suffered by a creditor of the company. Moreover, the court has only marginal discretion to assess such liability.

Shareholders acting as directors
It is quite common for shareholders to serve as directors of a company. In this way, they are able to play an active role in the management of the company, but can also be held liable pursuant to the rules on director's liability.

Shareholders acting as de facto directors
Some shareholders are actively involved in the management and decision-making process of a company, even if they are not officially directors and therefore are not subject to the rules on director's liability. The case law provides for a number of factors indicating a de facto directorship: (i) the shareholder is involved in the company's management without any statutory or contractual basis for such involvement; (ii) the shareholder regularly performs positive acts of governance; and (iii) the shareholder does not follow particular instructions.

Certain provisions of the Company Code expressly provide that a de facto director can be held liable in the same way as an actual director (e.g. personal liability for manifest gross negligence which contributed to the bankruptcy of the company). Moreover, it is generally accepted that de facto directors can be held liable to third parties pursuant to general rules of tort law.

Piercing the corporate veil
In extreme cases, a company is nothing but a mere veil or sham for its shareholders, who fail to respect the company's legal personality and use it for their personal interests.

In the '70s, the Belgian courts developed the doctrine of piercing the corporate veil, which allows the separate legal personality of the company to be ignored so that its shareholders can be held personally liable for the company's debts. In practice, however, this doctrine has not been applied since a decision of the Belgian Supreme Court in the late'70s. Certain scholars are nevertheless of the opinion that, under certain circumstances, a shareholder that abuses the company's separate legal personality may be held liable for its debts.

This brief overview shows that a company's limited liability does not constitute absolute protection for the personal assets of its shareholders.

However, the case law on shareholder liability is still very limited. Although there are many examples of shareholder liability based on statutory provisions, there is almost no case law on shareholder liability in tort or "piercing the corporate veil". Nevertheless, in times of economic crisis, the abovementioned grounds are sometimes used to put pressure on (majority) shareholders and companies. As such discussions are almost always settled out of court, little public information is available. However, it is still important to keep these issues in mind at all times.