MISMANAGEMENT
Unsuccessful collection of commercial debts: what are the risks for the company director?
Running a business is a daily challenge filled with opportunities—but also risks. Among these, the legal responsibility of the director or manager is often overlooked or underestimated. Yet, a single misstep can have far-reaching consequences, both personally and professionally.
For example, when attempting to recover debts from a company, suppliers or service providers may hold the company's director personally liable if a case of management error can be established.
ℹ️ What is considered mismanagement?
Although Djiboutian law does not define the term explicitly, mismanagement is generally understood as any fault in the general administration of the company due to negligence or fraudulent conduct, such as:
- Abusive pursuit of a loss-making activity in the personal interest of the director (art. L.4262-1 of the Djibouti Commercial Code),
- Keeping incomplete or irregular accounting records (art. L.4311-2),
- Inaction or passivity, such as failure to declare cessation of payments within the legal timeframe (art. L.4311-3).
⚠️ Alternative scenario: If the director's mismanagement cannot be established, creditors may seek to recover debts from a shareholder, but only after having first unsuccessfully sued the company (art. L.301-54).
Company directors: what are your legal responsibilities?
Our firm outlines the three key areas where you may be held liable as a director:
1️⃣ Liability toward the company and the shareholders
As a company director, you are entrusted with protecting the company’s interests. If you fail to do so—through negligence or mismanagement—the shareholders may file what is known as a derivative action(action sociale en responsabilité, to obtain compensation for the damage suffered on behalf of the company.
This applies to any decision or action taken in the performance of your duties (art. L.301-19 of the Djibouti Commercial Code).
2️⃣ Liability toward third parties
Your obligations also extend to your external partners: customers, suppliers, banks and public authorities.
You may be held personally liable for violations of the law, breaches of the company's bylaws, or misconduct in the day-to-day management of the company (art. L.301-46).
This may result in civil or financial penalties that directly engage your personal liability.
3️⃣ Liability in the event of the company's financial difficulties
In the event of judicial reorganization or liquidation, if the company has insufficient assets (i.e. if debts cannot be repaid), the court may hold the director personally liable for all or part of the unpaid liabilities. This penalty is imposed when management faults are proven to have contributed to the financial difficulties (art. L.4261-1).
💡 Our advice: anticipate to protect yourself!
As a director, your legal liability should never be taken lightly. Establishing sound governance, keeping thorough documentation, and seeking regular legal advice are essential steps to secure your position.
➡️ Our firm supports executives at every stage of their career: preventive advice, risk audits, dispute management... Don't hesitate to contact us for a personalized assessment of your situation.