Limiting (criminal) directors’ liability is extremely important. This applies both within the dynamics of business operations and in light of corporate governance. An effective strategy to reduce directors’ liability is the delegation of powers. The abolition of quasi-immunity with the new Book 6 of the Civil Code (Boek 6 Burgerlijk Wetboek) makes this strategy even more interesting (we have written about this previously: you can read it here).
The delegation of powers does not only offer legal protection, but can also prevent reputational damage and criminal consequences.
What is the delegation of powers?
The delegation of powers implies that directors transfer their responsibility to others within the company. Consequently, this mechanism offers directors the opportunity to distance themselves from specific acts, especially in the event of criminal offences. This allows them to avoid personal liability and prevent potential fines and reputational damage.
However, to be effective, the delegation must meet strict conditions. If these conditions are not observed, a judge may still decide that the ultimate responsibility must lie with the director.
What conditions must the delegation meet?
So what are these conditions?
1) There must be no general delegation:
The entire management may not be handed over, but rather the various sub-aspects (e.g. regarding workplace safety).
2) The delegation must be real:
The delegate must have autonomous decision-making power within their spectrum of competence.
3) The delegation must be clear and explicit:
This means that its object is clearly indicated. In order to demonstrate this, it is necessary that the delegation is described in writing.
4) Acceptance:
The delegate accepts the delegation and is aware of the limits and scope of their assignment.
5) Competence, authority and resources:
The delegate has the necessary competence, authority and resources to carry out their assignment. This means, among other things, that the delegate has received the necessary training and has the necessary authority and resources to perform their task.
6) Regular supervision:
The company (and the director delegating their powers) must always monitor the proper execution of the delegated powers. However, the director may not constantly interfere; in that case, the delegation will not be valid.
Only when all these conditions are met is the delegation valid and does it offer effective protection against directors’ liability.
Do you have questions about the delegation of powers within your company? Please do not hesitate to contact us via the contact form. We will be happy to assist you.