The whole point of a private or public limited company (ApS or A/S) is that the owners are not personally liable for the company's obligations. That is the core premise of the company form and what separates it from running a business as an individual. But the premise applies in full to the owners — not necessarily to those who run the company.
Directors and executives can in certain situations incur personal liability for losses suffered by the company, its owners or third parties. It does not happen automatically on the back of a wrong decision, and it does not require fraudulent conduct. It requires conduct that departs from the standard a reasonable and competent manager would have followed in the same situation.
The basic rule: fault-based liability
Management liability under Danish law rests on a culpa basis — i.e. liability for negligence. Section 361 of Selskabsloven (the Danish Companies Act) provides that directors and executives who, intentionally or negligently, cause loss to the company, the shareholders or third parties are liable in damages. It is a general provision; it does not specify which actions trigger liability — that is determined on the facts of each case.
The fault-based standard in corporate law is not the same as the standard that applies to a private individual. Members of management are judged on what can reasonably be expected of a competent manager in a similar position — with the knowledge and resources available at the time of the decision. Misjudgements and bad business decisions are not in themselves liability-creating, provided they were made on a sound basis.
The four situations that most often trigger liability
1. Continuing operations despite insolvency
The most common source of directors' liability is continuing the company's operations at a point when they should have been stopped. The rules of Konkursloven (the Danish Bankruptcy Act) and Selskabsloven impose a duty on management to act once the company is insolvent — i.e. unable to meet its obligations as they fall due, and not just temporarily so.
The problem typically does not arise as a single clear event. It happens gradually: liquidity tightens, creditors wait, salaries are paid late. The board and executive management wait — often in good faith and with genuine confidence that the situation will turn. But the longer operations continue without a prospect of improvement, the more loss accumulates, and the greater the risk of personal liability for that part of the loss that arose after the moment when operations should have been stopped.
The critical moment is not the bankruptcy order — it is the earlier point at which a responsible board should have decided to restructure or wind up. From that moment, continued operations can trigger personal liability for the losses that arise.
2. Payment of unlawful dividends
Dividends can only be distributed from free reserves — the part of equity exceeding share capital and restricted reserves. A distribution that exceeds free reserves is unlawful and must be reversed. If the board approves a distribution that does not fit within the company's lawful limits, the directors can become personally liable for the loss the company suffers — especially if the repayment claim against the recipients cannot be enforced.
The same principle applies to disguised dividends: arrangements that are in substance dividends to a shareholder but are presented as, for example, a consulting fee, a salary increase or a favourable transaction. A board that approves such arrangements can be liable even if they are formally framed as business transactions.
3. Failure to self-report and tax/duty obligations
The rules in Skattekontrolloven (the Danish Tax Control Act) and Opkrævningsloven (the Danish Tax Collection Act) mean that management may, in certain cases, be made personally liable for the company's tax and duty debt. That applies in particular where management has, intentionally or with gross negligence, failed to ensure correct reporting and payment of VAT, withholding tax and labour-market contributions.
The Danish Tax Agency can raise claims directly against directors and executives where it is established that the failure to pay is due to fault-based conduct on management's part — not merely a lack of liquidity. In practice the threshold for such claims is relatively high, but cases do occur, and the consequences are serious.
4. Transactions with related parties (conflicts of interest)
Selskabsloven contains rules on independence and conflicts of interest on the board. A director with a personal interest that may conflict with the company's is conflicted and must step out of the handling of that matter. If a conflicted director participates in approving a transaction, and the company suffers loss as a result, there is a basis for personal liability.
It is not only direct conflicts that matter. Transactions between the company and parties closely related to directors — for instance a property deal with a company owned by a director's spouse — can give rise to independence issues if not handled correctly.
Directors and officers insurance — what it covers and what it does not
Most professional directors are covered by D&O insurance (Directors & Officers). It generally covers claims for damages raised against members of management in that capacity — but it does not cover intentional wrongdoing, knowing breaches of law or certain categories of tax and duty cases.
It is essential to check that the policy is in place and in force, that the company's activities are correctly described, and that the cover is adequate in relation to the company's size and risk exposure. A policy that is too narrow or too small offers a false sense of security.
What the board can actually do
Personal liability can in most cases be minimised by acting in good time and documenting the decisions. It is a matter of ensuring that the board receives ongoing, accurate financial reporting, that decisions are made on a sound and documented basis, that independence issues are handled correctly, and that the board reacts quickly and professionally to liquidity and solvency problems — including obtaining advice early rather than waiting to see how the situation develops.
Passivity is, in many cases, the direct cause of liability. The board that fails to act is not more protected than the board that acts wrongly.