Manager/Director Liability: Limits and RCMS Insurance

Introduction

Running a company exposes you to considerable legal risks. Whether as a SARL manager, SAS president or SA managing director, the personal liability of the manager can be engaged on civil, criminal and even tax grounds. Contrary to common misconception, the corporate veil does not automatically protect the manager: management faults, breaches of constitutional articles or infringements of laws and regulations can result in direct claims against personal assets. Understanding the limits of this liability and taking out appropriate insurance therefore constitutes a major strategic issue for all company officers.

The Three Levels of Manager Liability

Civil liability is governed by article L. 223-22 of the French Commercial Code for SARL managers and article L. 225-251 for SA directors. Three grounds can engage it: breach of legal or regulatory provisions, breach of articles of association, and management fault. The ut singuli derivative action, exercised by a shareholder on behalf of the company, allows compensation for the company's loss to be claimed.

Criminal liability targets specific offences: misappropriation of company assets (article L. 241-3 of the Commercial Code, punishable by 5 years' imprisonment and €375,000 fine), presentation of false accounts, bankruptcy, or breaches of employment law and health and safety. Since the Fauchon Act of 2000, unintentional criminal liability requires a characterised fault.

Tax liability may be engaged under article L. 267 of the Tax Procedure Code, which allows the tax authorities to claim from the manager payment of taxes evaded by the company in the event of fraudulent schemes or serious and repeated non-compliance.

The Limits of Liability

Case law has established safeguards. The Seusse judgment of the Court of Cassation (20 May 2003) requires that the manager's fault towards third parties be separable from their duties, that is, intentional, of particular gravity and incompatible with the normal exercise of the social mandate. Failing that, only the company is liable. The limitation period for civil liability claims is 3 years from the damaging event (5 years in case of concealment). Furthermore, discharge of liability voted in general meeting does not prevent court action.

Company Officers' Liability Insurance (RCMS)

RCMS insurance covers the financial consequences of professional faults committed by the manager in the exercise of their duties. It covers legal costs (lawyers, experts), damages awarded, and sometimes civil fines where the law permits. Generally excluded: intentional faults, criminal fines, and damage caused before the date of cover. Annual cost ranges from €1,500 for a SME to several tens of thousands of euros for large groups, depending on turnover, sector and selected cover.

Practical Examples

Case No. 1 – Management Fault in a SARL: A manager decides to invest heavily in a project without prior market research. The company goes bankrupt. The liquidator brings a deficit claim (article L. 651-2 of the Commercial Code); the manager is ordered to pay €200,000 from personal funds. His RCMS insurance covers the indemnity and legal fees.

Case No. 2 – Irregular Dismissal: A SAS president dismisses an employee without following procedure. The employee sues the manager personally for detachable fault. RCMS covers defence and any civil damages awards.

Case No. 3 – Environmental Non-Compliance: A SME manager is prosecuted for illegal waste discharge (article L. 541-46 of the Environmental Code). RCMS funds criminal defence, but the fine remains the manager's responsibility.

Conclusion

The liability of a manager or director is not limited to the boundaries of the corporate body. Faced with the increasing number of disputes – shareholder, employment, environmental, tax –, taking out appropriate RCMS insurance is no longer optional but an essential asset management measure. Before any cover is taken out, it is necessary to carefully analyse the risks specific to your sector and negotiate tailor-made cover with a specialist broker.