Holding directors liable

Riquito Advogados
João Nuno Riquito
Partner
[email protected]

The civil liability of directors of commercial companies in Macau is governed under the provisions of Sections 245 to 250 of the Macau Commercial Code. The Law specifically addresses three types of situations where directors may be held liable: damages caused to the company; damages caused the shareholders; and damages caused to the creditors of the company.

Further to the conditions and requirements specifically addressed in the Commercial Code, the civil liability of directors also depends on the verification of the general conditions upon which general civil liability is based: voluntary action; tort; loss; causation; and fault.

Company liability

Directors have to comply with any laws and provisions contained in the articles of association that address respective activity. Moreover, they are generally required to always act in the interest of the company and that respective duties are carried out prudently and diligently. The infringement of any of those duties may constitute the obligation for the directors to indemnify the company for any damages arising from the breach of respective duties. Under Section 245 of the Macau Commercial Code, any breach of duties by the directors is presumed to be faulty. This means that the burden of proof belongs to the directors.

However, director liability is excluded in respect of damages arising from director's resolutions in the following situations: in the event the director did not participate in the resolution; or the director has voted against the majority and; in any event, the director has not participated in the execution of such resolution. The directors are required to record the direction of their vote in the resolution minutes as otherwise they will be presumed to have voted in favour of the resolutions passed. Under certain terms and conditions, directors' liability may also be excluded if their respective actions or omissions are supported by a shareholders resolution. That, however, will never be the case when the shareholders resolution is approved following a director's proposal. Directors are jointly and severally liable for any losses or damages they may have caused.

The right to start court proceedings against directors belongs, in first instance, to the company. This action by the company depends on a resolution passed by the shareholders (approved by simple majority) and implies the removal of the directors being sued, with the possibility of the shareholders appointing, if necessary, special representatives to act, for that purpose, on behalf of the company.

However, this action may alternatively be brought: directly by the shareholders; or by the company´s creditors with the purpose of obtaining an award ordering the payment of the compensation of damages to the company. The shareholders are entitled to bring an action against the directors for damages caused to the company if the following requirements or conditions are met:

• the company's shareholders have not resolved to submit a claim against the directors; this may be due to a deadlock situation, or when the majority shareholders do not want, for whatever reason, to seek compensation from the directors; and

• the shareholder who acts as plaintiff has unlimited liability or owns at least 10% of the company's share capital.

The action is brought by the shareholder in its own name and not in the name of the company against the director and the company should also be brought into the court proceedings as third party beneficiary of the compensation (in accordance with Sections 248, Paragraph 2 of the Commercial Code and with Sections 267 and following of the Civil Proceedings Code).

The creditors of the company are allowed, under Section 249, Paragraph 2 of the Commercial Code, to sue the directors whenever the company or its shareholders have not done it, provided that there is a justified fear of a relevant reduction of general guarantee of its credit. This exception is oriented to the protection of the general guarantee of the company´s actual creditors.

Creditors

Section 249, Paragraph 1 of the Commercial Code establishes that the directors are directly liable towards creditors when, as a result of the infringement by the directors of any laws or provisions of the articles of association of the company which are mainly or exclusively aimed at their protection, the company assets become insufficient to the payment of their respective credits.

This liability requires the infringement of a creditor protection provision, with the consequent loss of company assets and the result of the insufficiency of the assets to fulfill the credit.

Shareholders and third parties

The directors, other than the liability towards the company and creditor, may also be liable towards the shareholders and third parties for the damages that they have directly caused to them. Having verified all the general requirements for civil liability, the directors are liable for the losses directly caused to shareholders and any third parties in the exercise of their duties.

The remedies and the regime described in the previous paragraphs are a brief summary that shows the intention of Macau law to provide the company, shareholders and the creditors with the necessary mechanisms to react against any possible damages that could arise from any breach of the director's duties.