Generally, managers are liable for damages caused to the company resulting from his management activities in accordance with the provisions of contractual liability, ie performed in breach of contract. However, in order for this to apply the following must be found:
In the area of non-contractual damages, the manager and the company has joint and several liability towards the injured third party in the case that the damage was caused by the manager in connection with his legal position.
In the event of the company’s dissolution, creditors may bring an action for damages against the manager, if the manager failed to take the creditors’ interests into account in the event of an imminent threat to the company’s solvency (except where the company is wound up without going into liquidation). Following the company’s dissolution, claims for damages may be brought against the manager by the shareholders as well, although this must be within a preclusive period of one year following the company’s removal from the Companies’ Registry.
In respect of criminal liability, managers may be found guilty for committing criminal acts which are specific to their positions of executive officers, for example, impairment of own capital, failure to comply with the obligation to supply economic data and capital investment fraud. Managers may also be guilty of other felonies in connection with their activities, for example:
Penalties vary depending on the breach of duty however, for reference, please note the following penalties:
EUR2900) for failure in director’s duties relating in dissolution proceedings
The shareholders may, providing it is allowed in the Articles of Association, grant a ‘holdharmless warrant’, acknowledging the manager’s management activities during the previous financial year. This has the effect of approving all the manager’s actions from the previous year, thereby removing all liabilities towards the company and shareholders.
Please note that such restrictions shall not be effective vis-á-vis third parties.
There is no specific law regulating the limitation of liability for corporate actions for a directors’ breach in Hungary, however generally the limitation period is five (5) years. Any agreement excluding this limitation is null and void, but it can be restricted. For claims deriving from employment relationships, the limitation period is three (3) years.
In certain circumstances managers may delegate powers of representation to the employees of the company, however this must be done officially and in writing. Further, managers are generally still responsible for overseeing the actions of the delegate.
Directors and officers liability insurance is available and can be obtained by either the company or officer directly. However, please note that in practice it is not widely used for practical and cost implications.