“I set up a limited liability company (Kft.) so that my own assets would be safe” – as a broker I hear this sentence often, and it is largely true. Limited liability protects the member, but the managing director is liable not as a member but as an executive officer, and this liability can reach personal assets from several directions: from their own company, the creditors, the liquidator and, in certain cases, the tax authority. My article on directors' and officers' liability insurance described how this product differs from the company's general liability insurance. This article is the next step: when the managing director is personally liable, and what of this D&O provides cover for – and what it does not.
- As a general rule, the company is liable for the debts of a Kft. (limited liability company); the managing director's personal assets come into play if they cause loss to the company through a management error, or disregard the creditors' interests in a situation of threatened insolvency.
- D&O covers damages claims brought against the director personally for a management error, and the costs of defence – not the company's own debts, a suretyship the director has taken on, or liability arising in their capacity as owner.
- Intentional damage and criminal offences are exclusions in D&O policy conditions, not insured events; the details of the policy conditions differ from insurer to insurer, so it is the policy, not the brochure, that you need to read.
The general rule: the company is liable, not the managing director
The starting point is simple. The company's assets are liable for the company's debts; signing the contracts does not make the managing director the company's debtor or surety. Under Section 3:24 (2) of the Hungarian Civil Code (Ptk.), the legal person is liable for damage caused to a third party by an executive officer acting in that capacity; the officer is jointly and severally liable with the company only if they caused the damage intentionally. So if a customer suffers loss because of the company's defective performance, they can successfully sue the managing director personally only if intent is proven. Personal liability is therefore the exception – but the exceptions take effect precisely in crisis situations, when the company's assets are no longer enough.
Four directions from which personal assets can be reached
1. From your own company. Under Section 3:24 (1) of the Ptk., an executive officer is liable to the company for damage caused to the legal person in the course of their management activity under the rules on liability for damage caused by breach of contract. In practice, this claim is brought by a new owner, a minority member or the liquidator: a fine for a missed deadline, a commitment made without the funds to meet it, a bad contract. A discharge (felmentvény) offers some protection against this: if, when adopting the annual report, the members' meeting establishes at the officer's request that the management in the previous year was appropriate, then under the Ptk. the company can bring a claim for damages only if the facts or data on which the discharge was based were untrue or incomplete. 2. From the creditors, if the company ceases to exist. Under Section 3:118 of the Ptk., if a business company ceases to exist without a legal successor, the creditors may bring a claim for damages against the executive officer up to the amount of their unsatisfied claims if, after the threat of insolvency arose, the officer did not take the creditors' interests into account; this rule does not apply in voluntary liquidation (végelszámolás). 3. From the liquidator and the creditors in liquidation proceedings. Under Section 33/A of Act XLIX of 1991 on Bankruptcy Proceedings and Liquidation Proceedings (Cstv.), a creditor or the liquidator may bring an action asking the court to establish that, in the three years preceding the start of the liquidation, the company's executives, after the threat of insolvency arose, did not perform their duties with regard to the creditors' interests, and as a result the company's assets decreased or the satisfaction of the creditors' claims was frustrated; under the Act, the threat of insolvency exists from the point at which the executives foresaw, or with due care should have foreseen, that the company would not be able to pay its debts when they fell due. The case-law analysis group of the Kúria (Hungary's Supreme Court) issued a separate summary opinion on this form of liability; typical cases are asset stripping, giving preference to certain creditors and taking on new commitments without the funds to meet them. 4. From the tax authority. Under the secondary liability rules of the Act on the Rules of Taxation, the tax authority may, in the cases specified by law – typically with a company that has ceased to exist leaving an uncollectable tax debt – oblige the former executive officer by a decision to pay the tax; the conditions are worth reviewing with a tax lawyer, because the rule is detailed and depends on the case.
What is not management liability but only looks like it
As a broker, I see that personal assets are mostly put at risk not through the four routes above but in two simpler ways. One is suretyship: if the managing director has stood as direct surety for the company's bank loan, lease or supplier credit line, they pay on the basis of their own contractual obligation – this is not compensation for damage, and no liability insurance covers it. The other is the capacity of owner: under Section 3:2 (2) of the Ptk., if a member has abused their limited liability and, as a result, creditors' claims remain unsatisfied when the company ceases to exist without a legal successor, the member is obliged to answer for the debts without limitation. In an owner-managing director the two roles meet in one person, but D&O applies only to liability arising in the capacity of executive officer. Disqualification and fines are a separate category: disqualification is not damage but a legal consequence, and a fine imposed on the director is insurable only to the extent the law permits – the policy conditions deal with this separately.
What of this does D&O cover – and what not?
Under Hungarian policy conditions, the insured event in directors' and officers' liability insurance is typically that, during the policy period, a claim for damages is made in writing against the insured director for an error or omission connected with their management activity – the claims-made logic works here in the same way as in professional liability insurance. In such a case the insurer covers the pure financial loss the director is liable for and – typically within the limit – the costs of defence: lawyer's fees, experts, procedural costs, advanced under many policy conditions, and even if the claim later proves unfounded. Of the four directions above, the first three – claims by the company, the creditors and the liquidator – are in principle D&O territory, but the details differ from insurer to insurer: some policy conditions cover the company's own claim against the director only to a limited extent or under a separate clause, and for claims connected with liquidation there may be an insolvency exclusion or an exclusion of circumstances known before the start of cover. Secondary liability towards the tax authority falls outside most policy conditions, because there the director is not compensating for damage but paying the company's tax debt – this is not damage but a debt. What D&O does not cover: the company's own obligations, suretyship, liability as owner, claims involving bodily injury and property damage (these belong to the company's general liability insurance), and the items familiar from the exclusion map. The annual limit typically applies to all insured directors together, so a larger creditor lawsuit can exhaust it.
Intent and criminal offences: an exclusion, not an exemption
The two concepts are worth keeping apart, because their consequences differ. D&O policy conditions typically exclude intentionally caused damage, fraudulent conduct, criminal offences and obtaining an unlawful personal advantage – these are not insured events. At the same time, Hungarian and international policy conditions often tie this exclusion to a final court decision or the director's admission: until then the insurer may advance the defence costs and, if intent is later established, may reclaim them. This is also consistent with Section 3:24 (2) of the Ptk.: towards third parties, the director is jointly and severally liable precisely in the case of intent – that is, exactly where the cover ends. Exemption of the insurer (mentesülés) is different: it is the situation where the loss would be an insured event, but because of the insured's seriously culpable conduct the insurer may be released from paying, and the burden of proof lies with the insurer. I explained the difference in the article on intent and gross negligence; for D&O the practical lesson is that a negligent, even seriously flawed management decision is the product's territory, while deliberate asset stripping is not.
What should you do as a managing director?
First, it is worth clarifying what threatens you and in which capacity: no insurance will take suretyship or your liability as owner off your shoulders. Second, look at the company's own liability insurance, because damage caused by the company's activities is covered by that, not by D&O. Third, if the company has external creditors, minority owners or several directors, it is worth requesting quotes for directors' and officers' liability insurance and comparing not the premium in the offers but three points: whether the company's own claim against the director is covered, whether there is an insolvency or known-circumstances exclusion, and how the policy conditions handle the advancing of defence costs. And in a situation of threatened insolvency, documented decision-making that keeps the creditors' interests in view offers the most protection – the court assesses this afterwards from the minutes. If you let me know, I prepare the comparison of offers and a comparative table of the policy conditions; the legal assessment of the liability situation is a task for a lawyer.
Have a question about your own company and your role as a director? Book a free 20-minute consultation →
Sources
- Act V of 2013 on the Civil Code (Hungarian Civil Code, Ptk.) – Sections 3:2, 3:24, 3:117, 3:118
- Act XLIX of 1991 on Bankruptcy Proceedings and Liquidation Proceedings (Cstv.) – Section 33/A
- Act CL of 2017 on the Rules of Taxation (Art.) – secondary liability
- Dobrocsi Ügyvédi Iroda (Dobrocsi Law Firm): The managing director's liability for company debts (2026)
- Kúria (Supreme Court of Hungary) case-law analysis group: Liability of executive officers towards creditors (summary)
