Exercise your responsibilities carefully as the penalties for failure to do so can be severe.
Either the breach of duty itself, or the imposition of one of the sanctions described above, may lead to disciplinary action being taken against you and/or limitations upon you being able to continue in your role
A director can be held liable, based on the following grounds:
- Although the Board is acting as a collective body, each one of the directors has personal responsibility for their participation in the Board’s work and the decisions made. The Board is collectively responsible for the company’s management, but accountability for specific measures or decisions are always made individually. An individual director is responsible for his own acts or omissions. If several directors through participation in the same action or decisions jointly have caused the damage, they have joint and several liability.
- A director who in the performance of their duties, either intentionally or through negligence, damages the company must compensate for the damage. The responsibility towards the company includes not only obvious violations of the Companies Act, the articles of association, and the applicable law in general, for example regarding the annual report, but also breaches of the duty of confidentiality and the duty of loyalty and care associated with the position of trust. Each of the directors therefore has a personal responsibility for their participation in the Board and the decisions made. A director cannot legitimately rely on the fact that he or she followed instructions from the parent group, from a certain majority of shareholders or from external person.
- A director’s liability to a third party, eg individual shareholders, creditors, contractual parties is more limited than the responsibilities to the company. A director must therefore only compensate for damage that he or she intentionally or through negligence has inflicted on the third party if the damage results from violation of the Companies Act, the law on annual reports or the articles of association.
- It should be noted that a resolution from a general meeting which discharges a director from liability does not affect a director’s responsibility towards third parties.
- A director may, under certain conditions, together with the company be liable for the company’s debts if the measures prescribed by law with respect to anticipated capital shortages and forced liquidation are not taken in time. Failure to prepare a balance sheet for liquidation purposes, convene an initial meeting for liquidation purposes or take any other action required by the Companies Act causes personal liability for the directors.
- Criminal liability for individual directors may arise under the Companies Act which specifically provides for criminal penalties for violations of certain rules such as: unauthorised distribution of shares and other securities, deficiencies related to the
- company’s share ledger, failure to convene a board meeting, failure to summon the alternate director on duty, where the directors are not given the opportunity to participate in the consideration of a matter or do not get a satisfactory basis for a decision and unauthorized loans and securities.
At the annual general meeting the shareholders shall vote to discharge the directors from liability for the preceding fiscal year. If the directors are discharged from liability the possibility for the Company to claim damages is very limited.
Either the breach of duty itself, or the imposition of one of the sanctions described above, may lead to disciplinary action being taken against you and/or limitations upon you being able to continue in your role.
Civil actions can be brought against the directors by the Company, its shareholders or third parties.
Limitation of liability
The directors may be indemnified through an indemnity agreement. However, this is very uncommon in Sweden and if loss is caused wilfully or by gross negligence it is likely that a court would find the indemnity agreement invalid. In Sweden directors are often protected through directors insurance paid for by the Company.
Delegation of authorities
It is possible to delegate work. If the following apply, the directors may avoid liability:
- the expert or officer is relatively independent
- the expert or officer is competent for the work
- the division of the responsibilities is clear
- the directors monitor that the delegated work is properly performed
Directors and officers (“D&O”) insurance
D&O insurance is available against certain civil (but not criminal) liabilities, and is the responsibility of the officer or company to obtain.
Latest version updated
10th April 2018