The board and the general manager's liability

Posted by:
Monica Eriksen
on
February 21, 2022

Have you been offered a board position? This can be an exciting role, but it is important to be aware of the responsibilities that come with it. Then board members and the general manager can be held personally liable if the company goes bankrupt.

Many who take on the responsibility as a board member or general manager have not considered the consequences that the responsibility may entail in recent times. Liability for damages is an important factor that one should familiarize oneself with before making such a decision.

What does liability entail?
The board members will be liable for the financial losses that they intentionally or negligently inflict on others during the role as board member.

In order for liability to arise, someone must have suffered a financial loss, the board members must have done something, or failed to do something that contributed to the loss. Furthermore, the action must have been intentional or negligent. The board has then not complied with its obligations and will then be liable for damages.

How expensive can it get
In principle, the board members may be obliged to compensate for any loss they have caused to others. In other words, the compensation can be very large in the event of bankruptcy, depending on the size and value of the company.

Examples of negligence that can lead to liability

  • The board / general manager avoids setting up plans and budgets
  • Negligence in setting plans and budgets
  • Not kept up to date on financial position
  • Did not stay up to date on whether business, accounting and asset management are subject to satisfactory control
  • Not traded, or traded too late, when the company does not have prudent equity or liquidity and the obligation to act occurs.

How can you protect yourself against liability?
In order for the general manager and board members to be able to secure themselves against liability, it is important to work preventively and carefully. That is, to act in accordance with the law and do what is expected of oneself. Set up good internal systems for operational control, reporting and documentation.

The general manager also has the right to attend board meetings, and is free to express disagreement or concern to the board about the financial situation and how the company is run.

In relation to documentation, cases where board minutes are not kept or other breaches of case processing will rarely in themselves lead to liability. If, on the other hand, the company goes bankrupt, it is important for the board members that they can document that they are not guilty of bankruptcy as a result of non-compliance with, among other things, the duty to act.

As an extra security, the board members and the general manager can also take out board liability insurance.

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