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Directors Held Liable for Company’s Financial Troubles

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A growing trend of non-compliance by directors of financial entities with their legal and contractual duties is causing significant financial harm to companies and shareholders. In many cases, the assets of these companies become insufficient to satisfy their respective debts, leading to civil liability towards shareholders and third parties.

Breach of Regulatory Provisions

According to recent reports, some directors have been held liable for breaching regulatory provisions, even when they were aware of the breach but failed to take appropriate measures to prevent it. Criminal liability has also been extended to directors in cases where the company, acting through them, commits a criminal offense.

Standard of Care

For Non-Professional Clients

Financial intermediaries are expected to provide a high level of diligence and protection to non-professional clients, which includes informing them about specific risks, fees, and investment services. The standard of care for these clients is more demanding than that applicable to professional clients.

Private Rights of Action Limited

While private rights of action do not apply to violations of national financial services authority rules and regulations, directors may still be held liable for breaching their duties to the company and its shareholders.

Standard of Care for Customers

The standard of care for customers in Portugal is higher when dealing with non-professional clients. Financial intermediaries are required to inform these clients about specific risks, fees, and investment services, and must obtain explicit permission before using financial instruments registered or deposited in their name.

Cross-Border Regulation

Portugal has adopted the EU’s freedom to provide services legislation, allowing authorized financial institutions to operate across borders. However, the Bank of Portugal may still exercise supervision over these entities to ensure compliance with Portuguese laws and regulations.

International Standards

While international standards play an important role in shaping Portuguese regulatory policies, they do not have binding force and the authorities may deviate from them as necessary. This means that directors must be aware of both domestic and international regulatory requirements to avoid potential liability.

Conclusion

In conclusion, directors of financial entities in Portugal are expected to comply with their legal and contractual duties, and failure to do so can result in significant financial harm to companies and shareholders. It is essential for directors to stay informed about regulatory requirements and standards to avoid potential liability.