Fiduciary duties of company managers under Luxembourg law

The quantity of holding companies and fund related corporate entities, on top of the fairer number of commercial companies composing the Luxembourg economic environment leads inevitably to a significant demand for company officers on a relatively small-scale market.

Many company officers in place, whether assuming a role of manager or of director, are for various reasons not all Luxembourg residents or citizens. They will however, irrespective of their citizenship or place of residence, also be submitted to Luxembourg law as far as the performance of their mandate is concerned.

It is therefore crucial, at the time of considering whether to accept such a mandate to evaluate the duties and liabilities that are connected with the position of manager or director in a Luxembourg company.

As a matter of fact, there is no fundamental difference between the concepts of “manager” and “director” which is merely semantic. One or the other are used depending on the type of company which is referred to. A “manager” personifies (or is a part of) the management body of private limited companies (sociétés à responsabilité limitée or Sàrl’s) or partnerships (commandites) while the concept of “director” applies to the members of the board in public limited companies (sociétés anonymes). Consequently, managers and directors, who are elected by shareholders to run the company, have from a legal standpoint the very same duties and liabilities.

The topic of this paper is precisely to outline in a broad but nevertheless comprehensive manner the legal aspects of such duties and liabilities. For ease of reading this text uses the concept of “manager” only but refers indistinctively to the concept of manager in Sàrls and in partnerships and of director in sociétés anonymes.

Powers and authority

The role of managers which shall also, and to a certain extent, delineate their duties is to achieve the company’s corporate purpose as laid down in its articles of association. This is precisely the purpose for which they are being appointed by the shareholders of the company.

In order to fulfil their mission, the law grants managers the widest decision-making and representation powers. They may take any action necessary or useful to realize the company’s corporate purpose except those which fall into the scope of competence of the (general meeting of) shareholders pursuant to the law. They have furthermore exclusive authority to represent the company in dealings with third parties, before courts and administrative institutions. While performing their duties they must at any and all time (i) strictly respect the company law of 1915 and the company’s articles of association, (ii) be guided by the corporate interest of the company, and (iii) avoid making decision when having a conflict of interest.

In Sàrls and in some partnerships, a sole manager may be appointed in which case he will act alone as a single decisional and representative body of the company. Several managers may also be appointed and constitute a collegial body as is the rule for sociétés anonymes. In this case, any decision will need to be submitted to the board and shall only be adopted if it meets the quorum of majority. The authority to represent the company vis-à-vis third parties shall be

generally attributed to one specific manager acting alone (gérant- or administrateur-délégué) or to two of them acting jointly.

Listing in a comprehensive manner all the decisions that can be taken by the managers would be a complex (see impossible) exercise as they correspond to the residue of all that is not attributed to the general meeting of shareholders according to the law (which is by and large limited to the appointment of the managers and of the auditor(s) if any, the approval of the financial statements, the amendment of the articles of association, the company’s share capital increases or reductions, the mergers, demergers and dissolution, the granting of the annual discharge to the managers and the decision to launch the actio mandati against them as shall be examined hereinafter).

Typical management tasks and decisions are listed in the following box.

  • Acquisition and sale of goods, equipment, real estate
  • Leasing of offices
  • Hiring personnel
  • Bank dealings including bank loans, deposits and investments
  • Invoicing and collecting receivables
  • Maintaining accounting records and preparing financial statements
  • Convening the general meeting of shareholders when required
  • Filing tax returns, paying taxes
  • Taking loans with or without issuance of notes (obligations) or hybrid instruments (e.g. PECs, PPLs, …)
  • Sale of subsidiaries and of the company’s business (in part or as a whole)
  • Filing for bankruptcy or alternative insolvency measures


A fundamental principle of Luxembourg corporate law, known under the concept of thérorie de l’organe and reflected in section 441-8 of the law of 1915, is that managers acting in their capacity of corporate representative of a company do not assume the obligations arising from such action. They can therefore not be held personally liable in relation to these obligations.

Managers can however be obliged either to compensate the company or even to face personal liability towards (third-party) creditors of the company. While it might be assumed based on the wording of section 441-9 of the law of 1915 that the scope of managers’ liability is only twofold (on the one hand management negligence and misconduct and on the other hand violation of the articles of association and/or of the law) the situation is more complex. The main and most common sources of managers’ liability are described below.

Management misconduct

The managers are firstly liable vis-à-vis the company, according to general principles of civil law, for negligence and acts of mismanagement as a result of which the company suffered a loss.

From a strict legal standpoint, a manager is acting as a proxy. He has received a mandate from the company, represented for this purpose by its general meeting of shareholders, to run the company. It cannot be expected that he makes no mistake at all in fulfilling his tasks. Hence his duty of management corresponds to a mere obligation of means (obligation de moyen as opposed to an obligation of result or obligation de résultat).

Marginal scrutiny test

In assessing whether an action or failing to take action is to be considered as an act of mismanagement or negligence, the judge will rely on the criterion of the bonus pater familias and check if the indicted attitude is in line with

the one of an averaged skilled and diligent manager placed under the same circumstances. It is only if the manager’s action is clearly out of bounds with what could be reasonably expected from such average manager facing the same circumstances that he shall be liable to compensate the company for the resulting loss (principle of the marginal scrutiny test or contrôle marginal). On the contrary a manager would commit no breach to his duties if he acted in good faith after taking all required information and deciding according to what he considers, in good faith, to be the corporate interest of the company and after having put in balance, as the case may be, any possible alternative option.

Corporate interest

It must be stressed that the concept of ‘corporate interest’ must be applied cautiously when performing the required analysis as this notion is not defined by Luxembourg law and remains therefore relatively imprecise see even flexible (unlike other jurisdictions such as France where the supreme court has ruled on this subject matter). According to the most accepted (and restrictive) meaning, it coincides almost mechanically with the interests of the shareholders (or even the majority shareholder(s), especially insofar holding companies are concerned) while a wider approach apprehends the interest of the corporate entity as a whole and includes in it, along with the interests of the shareholders, those of employees and of creditors as well.


  • miscalculating sales prices or the value of assets contributed to third party companies,
  • refraining from paying taxes (among which especially collected VAT) and social security contributions,
  • neglecting to collect receivables owed to the company,
  • producing false or willingly inaccurate accounts or financial statements,
  • making unjustified or extravagant expenses,
  • granting loans for private purposes which have ultimately put the company in financial difficulties,
  • not attending board meetings or neglecting to perform all or part of its management tasks for months or sometimes even years.

Procedural aspects

The exposure of the managers under this particular type of liability is towards the company only and can only be put in motion before courts pursuant to a decision of its shareholders (actio mandati). Each year, at the annual general meeting, the shareholders are invited to vote on the discharge of the managers. Subject to the minority class action provided for under section 444-2 of the law of 1915 for sociétés anonymes only (action minoritaire), if such discharge is granted, the company will be irrevocably precluded from bringing the actio mandati against the discharged managers for any negligence during the relevant past exercise(s).

Manager’s liability is in principle sanctioned on an individual basis. A manager is liable for his own negligence or failures and not the ones of his fellow managers in case several have been appointed. However, a joint liability of all appointed managers may be declared if they were all involved in the argued negligence and if it proves impossible to perform an apportionment of liability among them.

Violation of the law of 1915 and/or of the articles of association

It is the managers’ duty to strictly comply with the company law of 1915 and the company’s articles of association. Any violation shall be sanctioned by the joint and several liability of all the managers for the damages suffered, not only by the company itself but also by any third parties including shareholders, creditors and employees as the case may be.

Unlike the assessment to be made by the judge in relation to mismanagement (which relies on his subjective opinion), appraising law and/or articles of association violations must be made objectively. The liability of the managers is therefore much easier to demonstrate. Managers’ liability is in this case obviously much sharper and should therefore guide managers in their actions to ensure that they strictly comply with applicable rules whether originating from the law of 1915 or from the articles of association.

According to general principles of liability, a causal link between the violation and the damage needs to be established as well.


  • Taking commitments in the name of the company out of the scope of the company’s corporate purpose;
  • Refraining from convening the company’s general meeting at least once a year or if requested by shareholders to do so;
  • Failing to convene the general meeting of shareholders in case of significant losses suffered by the company (for sociétés anonymes only, section 480-2 of the law of 1915);
  • Disregarding legal rules applicable to conflict of interests;
  • Disregarding representation rules laid down in the articles of association;
  • Violating the specific rules relating to dividend distribution or to buy-back of shares.

Tort liability under the civil code

The existence of specific sources of liability applicable to managers does not undermine the possibility to invoke other types of liabilities which are derived from the general principles of law and more in particular the general rule of tort liability laid down at section 1382 of the civil code.

Managers can be held liable under this provision if the company or third-parties (including the company’s shareholders) suffered a damage as a result of their acts and if it appears that they acted in a way that is not consistent with the conduct of a normally careful and diligent manager (which includes, as the case may be, violating applicable laws).

This principle shall apply only to the extent that the manager’s conduct is questionable independently from his role and his tasks of manager. More in particular, his negligence must not be related to the performance of the company’s activities (faute détachable). According to French case law to which Luxembourg courts may keenly refer to on this topic, the concept of “faute detachable” relates to an intentional misconduct inconsistent with the performance of his manager’s duties. Moreover, the damage of the plaintiff must be separate and distinct of the loss possibly suffered by the company itself.

On the face of the case law published during the past decades this type of liability has however been more frequently invoked then effectively admitted by courts.

Specific sanctions and liabilities in case of bankruptcy


Any commercial company which is no longer able to pay its creditors and has irrevocably lost any chance to benefit from terms of payment has the obligation to file for bankruptcy. Failing to do so within one month as from the moment the inability to pay has become certain (cessation des paiements) constitutes a specific criminal offence called ‘banqueroute’ that can be sanctioned by a jail term ranging from one month to two years, without prejudice to an additional sanction of judicial interdiction entailing several professional bans (see section 574 of the commercial code and section 489 of the criminal code). Violation of other legal obligations such as corporate bookkeeping, holding of accounting or collaborating with the

bankruptcy receiver can also be treated as offences and sanctioned identically pursuant to the same provisions of the commercial code.

Action en comblement de passif

Under a specific court proceeding deriving from the legal regime of the bankruptcy and known under the concept of action en comblement de passif (section 495-1 of the commercial code), any individual running a business that has been declared bankrupt may be sentenced to repay the company’s liabilities, in all or in part, in case the bankruptcy originates in gross and aggravated negligence or misconduct of his. The sanction applies whether said individual operated the business as a result of a legal status (e.g. company managers) or de facto.

The court proceeding is to be launched exclusively by the bankruptcy receiver who shall act in the name and on behalf of the bankrupt company in the interest of its creditors.

Although the condition of application of this sanction is obviously stronger than for mere mismanagement cases (it requires an undisputable and unforgivable aggravated negligence where its author was or should have been conscious of the fact that it would lead to insolvency) courts are inclined to admit it when it can be demonstrated that the bankruptcy is a direct consequence of such negligence or misconduct.


  • interrupting abruptly the company’s operations and selling its assets to competitors while on another hand refraining from declaring bankruptcy in due time,
  • continuing recklessly for more than one year the running of commercial operations without any cash flow at hand,
  • preferring to pay non-privileged creditors to the detriment of tax and social security institutions,
  • making unjustified and undocumented cash expenses which have put the company’s financial situation in danger.

Specific liability for unpaid taxes

According to the Luxembourg general tax law (Abgabenordnung) of 1931 company representatives shall be personally liable for all liabilities resulting from the breach, by the company, of its tax obligations (section 109). The law provides that such breach must be the consequence of a negligence committed by said representatives who shall then suffer a joint liability with the company to pay the tax debts of the latter.

Tax administration will typically deliver a tax bulletin directly to the manager(s) and subsequent disputes about the validity of this claim are to be brought ultimately before the administrative court.

Numerous court decisions do however confirm the tax administration’s standpoint especially in cases where a company collected taxes (VAT or withholding taxes on salaries) and was ultimately unable to pay the corresponding amounts to the public treasury. Causes of excuses brought forward by claimants such as e.g. the company finances or accounting were dealt with by other managers or people within the company, they are not the company’s beneficial owner or they are meanwhile no longer in function, are most of the time considered as being irrelevant and rejected by the court.

Criminal sanctions

Violation of the law of 1915

The company law of 1915 contains several criminal sanctions (mainly fines but also jail terms) to which managers will be exposed in case of infringement of various obligations laid down by the law in order to ensure the proper functioning of its corporate bodies and due information owed to shareholders or third parties (see sections 1500-2 to 1500-15 of the

law of 1915; see more in particular the 500 to 25.000 euros fine for failing to have filed financial statements in due time). These criminal sanctions overlap with the civil liability principles in relation to the violation of the law of 1915 examined in the previous paragraphs.

Criminal offences committed by the manager personally …

Sanctions derived from the criminal code naturally apply as well. Notable among those are the fines and jail terms applicable to the misuse or appropriation of corporate assets (abus de biens sociaux) sanctioning managers who have diverted, in order to satisfy private interests, some of the company’s assets (very frequently monies through the use of bank or credits cards) or failed to return specific professional equipment (e.g. computers, smartphones, cars, …) after the term of their appointment. The fact that the diversion of assets may have been committed with the consent of shareholders or that the manager has been granted the discharge will not be considered as a valid cause of excuse.

… or on behalf of the company

Last but not least, managers may be sanctioned personally, at criminal level as well, if their conduct led the company to commit criminal offences. Notwithstanding the fact that since the law of 3 March 2010 (amending the Luxembourg criminal code) a specific criminal liability of corporate entities is provided for, section 34 of the criminal code explicitly states that the criminal liabilities of both, corporate entity on the one hand, and of its managers on the other hand, can coexist. Operating a business without the proper business licence (autorisation d’établissement) sanctioned by fines under section 39 of the law of 2 September 2011, may be noteworthy in this respect.

Limitation periods

Civil liability court actions will be time barred five years after the relevant negligence, mismanagement event or violation of the law or of the articles of association took place (section 1400-6, 4°, of the law of 1915). The same limitation period applies to most criminal offences applicable to the performance of management duties.

A glance at this range of sanctions and liabilities may reveal anxiogenic but should not. Most circumstances where managers end up being on the hook imply that they acted recklessly or, at least, adopted a careless conduct which is antipodal with their acceptance of the role. It must be reminded endlessly that signing up for a manager’s role or mandate should never be made out of courtesy, as a friendship or family favour, or in the expectancy or prospect that others will run the company properly anyway. Due and constant care that the company’s deciding bodies do not stay idle for too long periods of time and that the company is abiding its legal obligations among which approving and filing its financial statements, is the minimum of what can be expected from people taking on the role. Moreover, presenting financial statements to the shareholders as is a part of the managers duties is not a purely formal exercise and the manager must at the least have some basic comprehension of the reality that these statements are deemed to reflect. It is only then that managers can put themselves in a position where they can ultimately adopt the proper conduct consistent with their mission.

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