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🟠 SUMMARY
The Portuguese Commercial Companies Code provides several ways of holding directors accountable towards the company, the shareholders, creditors, and third parties in general.
In its 396th paragraph, this law establishes that the directors' liability towards those parties must be secured, and that this security (bond) can be replaced by a civil liability insurance contract.
This is the mandatory 396º Insurance, whose main characteristics we will analyze in this article.
🟠 LIMIT
The 396º Insurance capital limit must be at least € 250,000 for each director and for the following types of companies:
- Stock market listed companies
- Companies that exceed two of the following limits (“large companies”):
i) Total balance: € 20,000,000
ii) Turnover: € 40,000,000
iii) Average number of employees: 250
The minimum capital for other companies is € 50,000.
🟠 PREMIUM
The insurance premium must be individually borne by the director and not by the company.
However, the company can subscribe to a group insurance policy where the company is the policyholder, and the directors are the insureds.
In this case, the group insurance must be “contributory”, meaning that the premium amount should be deducted from the director’s remuneration.
🟠 COVERAGE
The 396º insurance is a civil liability insurance. Essentially, the insurer covers the risk of the insured being obligated to compensate third parties for acts and omissions that breaches his legal duties as a director.
According to Portuguese law, civil liability can be based either on acts committed negligently as well as willfully. For this reason, in order to comply with the law, 396º Insurance must cover willful acts.
Considering that D&O Insurance typically excludes willful or fraudulent conduct by directors, this type of insurance is not suitable to meet the insuring obligations as provided in article 396º.
🟠 MANDATORY INSURANCE
As a mandatory insurance, the 396º Insurance has also the following particularities:
- The insurance policy must be registered with the Insurance Supervisory Authority – ASF*
- A European insurer wishing to market this product in Portugal must designate a “representative for claims” within the country*
- Third parties seeking compensation may sue the insurer directly in court
*We are currently awaiting clarification from the Regulator on these obligations.
🟠 INSURANCE TERM
The insurance must be in place within 30 days following the director’s appointment, and its guarantee must remain until the end of the calendar year following the one in which the director ceases their functions for any reason.
The consequence for the breach of this obligation is the termination of the director’s functions.