Directors’ Liability in Portugal

Few questions cause as much perplexity among entrepreneurs, investors and foreign lawyers as that of knowing when, and how far, a director will answer with their own assets for the misfortunes of the company they run. The common intuition — that incorporation creates an impenetrable shield — is only partly true. Limited liability protects shareholders as to their contribution; it does not protect the holders of management bodies as to the consequences of their own acts.

Two planes that practice often conflates should be marked out at the outset. The personal liability of the director is not the same as piercing the corporate veil. The latter exceptionally sets aside the autonomy of the legal person in order to attribute a company debt directly to the shareholder. The former, by contrast, leaves the company intact as a centre of attribution: what is asserted is that the director themselves breached a duty incumbent upon them — a legal or contractual duty towards the company, a duty to protect creditors, a tax obligation, a duty not to commit a crime.

This distinction has methodological consequences. Portuguese law contains no «unified directors’ liability statute». There is, rather, a mosaic of regimes, each with its own requirements, fault standard, burden of proof and holder of the right of action. The correct analysis is therefore always relational: one must ask which duty, owed to whom, by which person, in which capacity, with what fault standard, and with what causal link to the damage or to the unpaid liability.

Portuguese company law is type-specific. In a private limited company (sociedade por quotas), management is vested in one or more managers (gerentes); in a public limited company (sociedade anónima), it may be entrusted to a board of directors, a sole director in the cases provided by law, an executive board in the two-tier structure, or to delegated directors and executive committees. For an international reader it is convenient to treat all these office-holders under the umbrella term «director», but the expression must be read functionally: several regimes also reach members of supervisory bodies, statutory auditors, liquidators and legal persons appointed to office through their representatives.

Decisive is the figure of the de facto director or manager. The de facto director is not the merely influential shareholder, nor the consultant whose advice the company follows; it is someone who, without formal appointment, effectively exercises powers of administration, represents the company before third parties and imposes or makes material decisions of management, finance, tax, employment or accounting. Portuguese law does not adopt the common-law general category of «shadow director», but reaches functionally similar results by various routes — de facto management, shareholder liability for the appointment of directors, the rules on groups of companies, tax enforcement reversal, criminal participation and the qualification of insolvency.

The core of the regime is found in articles 64 and 72 to 83 of the Portuguese Companies Code (Código das Sociedades Comerciais — CSC). Article 64 sets out the fundamental duties. The duty of care requires availability, technical competence and knowledge of the company’s activity, the director being bound to employ the diligence of a prudent and orderly manager. The duty of loyalty requires action in the company’s interest, having regard to the long-term interests of shareholders and weighing the interests of the other subjects relevant to the company’s sustainability — employees, customers and creditors.[1] This formulation, the product of the 2006 reform, is at once the standard of conduct and the yardstick against which unlawfulness is measured.

Under article 72(1) CSC, directors are liable to the company for damage caused to it by acts or omissions performed in breach of legal or contractual duties, unless they prove that they acted without fault. The provision thus establishes a presumption of fault: it falls to the director to show that they acted diligently.

Paragraph 2 of the same article introduces the Portuguese equivalent of the business judgment rule: liability is excluded if the director proves that they acted on an informed basis, free from any personal interest and according to criteria of business rationality. It is a rule of judicial deference towards legitimate business risk: the court does not substitute its own appraisal of expediency for that of the manager, provided the decision-making process was sound. The rule protects the decision, not the outcome — a ruinous but informed and disinterested decision does not, of itself, give rise to liability.

Where the decision is collegiate, a director who did not take part or who voted against it is not liable for the resulting damage, provided their opposition is recorded in the manner and within the time required by law. Conversely, a person who had a duty to oppose an act and failed to do so may become jointly liable. Liability is, as a rule, joint and several among the responsible directors (article 73), without prejudice to the internal right of recourse according to the degree of fault. Clauses that exclude or limit liability in advance are null (article 74).

Article 78 CSC establishes a creditor-protective regime: directors are liable to creditors where, through culpable non-observance of legal or contractual provisions intended to protect them, the company’s assets become insufficient to satisfy their claims. It is a particularly relevant regime where management continues trading while eroding the creditors’ security, makes unlawful distributions or disregards capital-maintenance rules. Unlike article 72, this regime does not carry a presumption of fault.

Article 79, in turn, allows shareholders and third parties to claim for damage directly caused to them by the director in the exercise of their functions. The requirement of direct damage is central: loss that is no more than a reflection of the company’s own loss is, as a rule, a corporate claim and not an individual one. By contrast, false or misleading information, the unlawful refusal of information or the breach of pre-emption rights may support a direct claim.

Mention should also be made of article 83, which provides for the joint liability of a shareholder with power to appoint or remove a director, where the appointee is liable and there was fault in the choice — a point to which we return in connection with parent companies.

In litigation practice, tax exposure is by far the most frequent personal risk for directors in Portugal. Article 24 of the General Tax Law (Lei Geral Tributária — LGT) provides that directors, administrators and managers — and other persons who exercise, even only de facto, functions of administration or management — are subsidiarily liable towards the company and jointly liable among themselves for tax debts, in two scenarios carefully distinguished by the law.

In the first (subparagraph a), where the event giving rise to the debt occurred during the term of office, or the legal payment deadline ended after it, liability depends on the company’s assets having become insufficient through the director’s fault — with the burden of proving those requirements resting on the Tax Authority. In the second (subparagraph b), where the legal payment or delivery deadline ended during the term of office, the director is liable unless they prove that the failure to pay was not attributable to them. The reversal of the burden is, in this second case, particularly onerous for the manager.

Liability is subsidiary: it is enforced by reversal of the tax enforcement procedure, following a finding that the primary debtor’s attachable assets are insufficient and after the responsible person has been heard. This is no remote risk. VAT, withholding taxes, corporate income tax and social security contributions are recurring sources of reversal. In addition, under article 8 RGIT, directors and managers may be civilly liable, on a subsidiary basis, for the fines and penalties imposed on the company for tax offences. 

Portuguese law knows no figure entirely equivalent to English wrongful trading, but it imposes a duty to file for insolvency and attaches severe consequences to culpable insolvency. Under article 18 of the Insolvency and Corporate Recovery Code (CIRE), the debtor must request a declaration of its insolvency within 30 days of becoming aware, or of when it ought to have become aware, of the situation of insolvency, subject to the exceptions arising from pre-insolvency proceedings.

Insolvency is qualified as culpable where the situation was created or aggravated as a result of the intentional conduct, or conduct with gross negligence, of the debtor or of its de jure or de facto directors in the three years preceding the commencement of proceedings (article 186). The law combines irrebuttable presumptions of gross fault — among them the failure to prepare, audit or deposit the accounts, the concealment or dissipation of assets and the creation of fictitious liabilities — with rebuttable presumptions, notably the breach of the duty to file.

The consequences of the culpable qualification, now set out in article 189 as amended by Law no. 9/2022, include the identification of the affected persons, their disqualification from administering the assets of others and from carrying on trade for a period of 2 to 10 years, the loss of claims against the insolvency or the estate, the restitution of assets already received, and an order to compensate creditors up to the amount of the unsatisfied claims. The most recent case law of the Supreme Court of Justice has, however, declined an automatic reading of this compensation, requiring the general requirements of civil liability to be met and the damage actually caused to be assessed.

A director may be criminally liable where they personally commit, take part in, order, tolerate or omit legally required action in relation to conduct that satisfies a criminal type. The criminal liability of the legal person, admitted by article 11 of the Penal Code for a catalogue of offences, does not exclude the individual liability of the relevant agents.

In the tax field, the critical points are VAT and withholding taxes received or deducted but not delivered, false invoices, the omission of revenue and undeclared work. Prominent among the offences are tax fraud (article 103 RGIT), tax abuse of trust (article 105) and abuse of trust against social security (article 107), the latter bearing on contributions deducted from employees and corporate officers and not delivered to social security.

As to insolvency offences, the Penal Code punishes fraudulent insolvency (article 227), frustration of claims (article 227-A), negligent insolvency (article 228) and favouring of creditors (article 229). These types are especially relevant for the director who conceals or dissipates assets, creates fictitious liabilities, keeps inaccurate accounts or favours certain creditors to the detriment of others in the face of known or imminent insolvency. Where the debtor is a legal person, the law expressly reaches whoever exercised de facto management.

The decisive question is not the job title, but authorship, participation, knowledge, intent or — where punishable — negligence, the legally relevant omission and the existence of a personal duty to prevent the result. Board minutes, instruments of delegation, compliance reports and documented opposition to unlawful conduct may therefore constitute evidence of the first importance.

Portuguese company law confers no immunity on non-executive or independent directors. The same duties of care and loyalty apply to them, although the concrete assessment of unlawfulness and fault takes account of their functions, their access to information and their ability to influence or prevent the harmful conduct. Delegation of powers to an executive committee or to directors does not relieve the management body of its duty of supervision: the reliance placed on specialists must be reasonable, informed, documented and revisited when warning signs appear.

As for parent companies, the mere holding of shares or the appointment of directors does not, of itself, give rise to liability for the subsidiary’s debts. Such liability may, however, arise under article 83 CSC, where there was fault in the choice of the appointed director; from the rules on groups of companies; from the conduct of the parent’s officers as de facto managers; or from its participation in unlawful conduct. The risk increases where the parent gives instructions that are blindly followed, extracts assets, centralises treasury in a prejudicial way or uses the subsidiary as an instrument.

Limitation periods vary according to the basis of the claim. The company’s right against directors lapses, as a rule, within five years from the end of the intentional or culpable conduct (article 174 CSC), without prejudice to a longer period where the act also constitutes a crime. Tax debts lapse, as a rule, within eight years (article 48 LGT); tax offences and Penal Code offences follow their own periods, subject to causes of suspension and interruption. The limitation analysis must always be done case by case.

Directors’ and officers’ (D&O) liability insurance is lawful and widely used, especially in groups, larger companies, listed companies and regulated entities. It typically covers defence costs and certain civil-liability claims, but it is only one layer of protection. It does not validate exclusion clauses — null under article 74 CSC — nor does it, as a rule, cover fraud, intent, administrative fines, tax debts and criminal penalties, frequently uninsurable on grounds of public policy.

The dispersion of the regimes should not obscure their structural unity. In all of them, the director’s liability depends on the identification of a duty, its culpable breach and a causal link to the damage or to the unpaid liability. The same conduct — keeping withheld taxes undelivered while continuing a loss-making activity — may simultaneously found corporate liability towards creditors, tax enforcement reversal, a culpable qualification of insolvency and criminal liability.

From this follows the soundest practical recommendation: beyond the substantive performance of duties, a genuine culture of evidence is required. The timely registration of appointments and resignations, the clear delimitation of delegated powers, the documentation of the decision-making process, the recording of dissenting votes, the monitoring of solvency and the segregation of sums withheld for the State are not formalities: they are, very often, the difference between exoneration and condemnation. In a word, a director’s defence is prepared before the dispute, and it is prepared in writing.