Directors’ Liability in Slovenia

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Slovenia

Liability of directors of companies in Slovenia

Civil liability of members of management bodies of the company is in Slovenia primarily regulated by the Companies Act, the Financial Operations, Insolvency Proceedings, and Compulsory Dissolution Act and the Civil Code.

The civil liability of the director consists of two aspects: the director is liable to the company (so-called internal liability) with respect to his actions due to which damages incur to the company; under certain conditions the director may be personally liable towards third parties (so-called external liability).

The director shall under the Companies Act be obliged to perform his duties and shall act with the diligence of a conscientious and honest businessperson and shall safeguard the trade secrets of the company. In the case of “internal” liability, the director shall be liable for damages incurred to the company if the director committed unlawful action and acted in contravention to the said standard of diligence. In principle, the business judgement rule shall be applied at assessment the liability of the director for the damages incurred to the company. The company shall prove the breach of duties committed by the director(s), the damages incurred and the casual link between the director’s unlawful actions and the damages. There is a presumption of guild under the Slovenian laws, however, the directors may exculpate themselves by proving that they acted with the diligence of a conscientious and honest businessperson. In principle, the director is liable for damages in full if such were caused intentionally or through gross negligence.

In exceptional cases, the director may be personally liable towards third parties due to actions committed on behalf of the company. For example, if the director is employed with the company and due to his/her unlawful actions damages were incurred by third parties – in such cases third party would have the right to claim reimbursement of damages from the company as well as from the director directly, if the director committed the breach intentionally.

Who can bring an action against directors of a company for civil liability in Brazil?

As a general rule, the company, the shareholder(s), the bankruptcy administrator, and the company's creditors may sue the management and supervisory board members.

n cases where the damages were suffered by the company due to misconduct of its director(s), an action would normally be brought against the director(s) for his/her civil liability by the company itself. The company would in such action be represented by its legal representatives - management; however, in cases where the person against which the action is brought is still holding the function of the director of the company, the company would be represented by the president of the supervisory board.

The company's management shall file an action for the compensation in respect of damage caused to the company within six months of the date of the general meeting (decision to be adopted by simple majority). If the action is to be filed against a person who still performs the duties of a member of the management or supervisory body during the deliberation on the decision by the general meeting, the general meeting shall appoint a special representative which shall represent the company in the proceeding. If the proposal to file an action against the company’s director is rejected by the general meeting, or if the general meeting fails to appoint a special representative, or if the management or the special representative fail to act in accordance with the general meeting's resolution, shareholders whose combined business interests account for at least one tenth of the share capital or whose nominal value or the corresponding amount of share capital amounts to at least EUR 400,000 may file such action in their own name and on behalf of the company.

An action for civil liability may in certain cases be brought against the directors also by the company’s creditors (if the company is unable to repay them or if bankruptcy proceeding is initiated against the company) and by the bankruptcy administrator (if bankruptcy proceedings is initiated against the company).

Criminal liability risks of company directors in Slovenia

The main source of criminal liability for directors of the company is the Criminal Code.

Typical crimes committed by directors include crimes against the economy, such as an abuse of a position or trust in a business activity, commercial fraud, defrauding of creditors, causing bankruptcy by fraud or unconscientious operations, unlawful giving or acceptance of gifts, tax evasion, unlawful restriction of competition, money laundering, defrauding customers, loan and benefit fraud, fraud to the detriment of the European Union’s financial interests, disclosure and unlawful acquisition of trade secrets, forgery of documents.

A company may be criminally liable for offenses listed in the Slovenian Liability of Legal Persons for Criminal Offences Act (that is for so-called corporate "catalogue of offenses"). Company’s directors may be criminally liable for those same offenses or for other offenses not included in such catalogue. In any event, the guilt of the director is required for his/her criminal liability.

Who may initiate criminal proceedings against directors?

The initiation of criminal proceedings is regulated by the Criminal Procedure Act.

The injured party or any other interested party may propose initiation of the criminal procedure against the director of the company (by filing the criminal complaint). However, criminal proceeding against the director(s) may be commenced by State Prosecutor.

If the State Prosecutor finds that there are no grounds for the prosecution of a criminal offence prosecutable ex officio, or if the State Prosecutor discontinues prosecution, the injured party may start or continue (as applicable) the prosecution by himself or herself. The injured party shall be entitled to start or continue prosecution within thirty days of receiving the information referred to in the preceding sentence.

What are the statutes of limitations for civil and criminal cases?

Civil claims against the company’s directors are time barred after five years (whereby the limitation period starts running once the injured party was able to require the satisfaction of the claim). If the damages are suffered as result of a criminal offence, then a longer limitation period is laid down for criminal prosecution, a compensation claim against the director shall become statute-barred when the limitation period for criminal prosecution expires. Commencement of criminal proceeding against the director shall also interrupt the limitation periods for the civil cases.

As regards the director’s liability for criminal offences, the limitation periods for prosecution depend on the type of criminal offence committed (considering the prescribed imprisonment penalty for particular crime and/or on the amount of damages incurred to the injured party by the criminal offence (value of the offence)).

Insurance for liability of company directors in Slovenia

Directors & Officers (D&O) liability policies are used in Slovenia to cover the director’s civil liability. D&O liability policies may cover all the consequences of actions of directors set forth under the relevant insurance policy which result in a civil liability of the directors or the company due to the director’s actions (and hence, the insurance does for example not cover director’s disciplinary or criminal liability or liability for payment of fines in misdemeanour proceedings).

The terms & conditions of the insurance policy must be carefully reviewed and/or drafted to clearly define the scope of the cover.

While individual insurance coverages are possible (that is when the director itself enters into insurance policy with the insurance company to insure the risks with respect to its position), it is common that the company enters into insurance agreement with insurance company under which the risks with respect to operation of the management or supervisory bodies of the company are insured. If the company concludes an insurance contract with which members of the management or supervisory body are insured against risks stemming from carrying out their duties in the company, the insurance excess fee (deduction) shall be in the amount of at least 10% of the damage but not greater than 1.5 times their fixed annual income.

The liability of executive directors, non-executive directors, and independent directors of companies in Slovenia

The same rules on liability apply for executive directors and non-executive directors and (independent) directors and hence in terms of liability the Slovenian laws do not differentiate between executive and non-executive directors. The liability of directors arises due to their office (that is due to the appointment of individual on the position of director of the company) and the legal basis on which the director performs his duties for the company is not decisive (i.e. the same liability rules apply regardless whether the director is employed with the company or not).

In case of limited liability company, the shareholder’s resolution on enforcement of claim is a pre-condition for enforcing the (damages) claim for civil liability against the company’s (former) director. If the adoption of such a resolution is rejected on the general’s meeting, the shareholder which proposed adoption of resolution shall have the right to bring an action against director for its civil liability.

The liability of holding companies controlling the appointment of directors in a subsidiary in Slovenia

The mere fact that the holding company appoints the director(s) of the subsidiary does not itself present grounds for liability of the holding company for actions of such directors. As a general rule, responsibility lies primarily with the company and the director.

The holding company can be liable for actions of its subsidiary company in the event of de facto (factual) concern (that is when a parent company and one or more subsidiaries are affiliated under the single management of the parent company; in German language: faktischer Konzern) or contractual concern (that is in case of companies affiliated under a control agreement; in German language: Vertragskonzern) or a flat concern (that is in case of legally independent companies affiliated under a single management without the companies being mutually dependent). According to Slovenian laws it shall be presumed that a subsidiary and a parent company together constitute a concern of companies (i.e. group of companies; in German: Konzern; Konzernunternehmen) and the companies that are included in a concern of companies and are affiliated under a single management shall be deemed to be concern companies. Special liability rules for the holding company and management bodies apply in case of concern companies.

The shareholder(s) of the company shall also assume liability for the obligations of the subsidiary if the conditions for lifting the corporate veil are satisfied (e.g. if they have abused the company as a legal person in order to attain an objective that is forbidden to them as individuals, if they have abused the company as a legal person, thereby causing damage to their creditors or creditors of the company,..).

Also, third parties (including the holding company when there is no factual or contractual concern) may be liable for actions of directors of the company under certain conditions. Namely, the persons who use their influence over a company to intentionally induce the members of the management or supervisory bodies, the procuration holder or the authorised person to act to the detriment of the company or its shareholders, shall compensate the company for the resulting damage. Shareholders shall be compensated for the damage they suffered irrespective of the damage they incurred through the damage caused to the company. In addition to the members of the management or supervisory body, anyone who derives benefits from a damaging action, if such action is committed intentionally, shall also assume joint and several liability. A company's compensation claim may also be pursued by the company's creditors if the company is unable to repay them. The above described shall not apply if a member of the management or supervisory body, the procuration holder or the authorised person was obliged to perform the damaging action in exercising: (i) a voting right at the general meeting; (ii) entitlement to conduct business based on a controlling contract; or (iii) entitlement to conduct the business of the principal company into which the company is incorporated.

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