Mismanagement
The third ground of directors' civil liability under the French Commercial Code, with no statutory definition, and the most frequent allegation in a French D&O (directors and officers) claim.
Mismanagement is the ground of liability raised against a director for the way he ran the company, outside any breach of a written rule. Article L. 225-251 of the French Commercial Code makes the directors and chief executive of a société anonyme (SA) liable, to the company or to third parties, for three things. These are breaches of the laws or regulations applicable to sociétés anonymes, violations of the articles, and faults committed in their management. Article L. 223-22 repeats the same trilogy for the gérant of a SARL (société à responsabilité limitée), and article L. 227-8 extends it to the officers of a SAS (société par actions simplifiée). The first two grounds are checked against a text. The third has no statutory definition, and it is the one that fills the docket. Courts have read into it recklessness, a decision taken without adequate information, an act contrary to the corporate interest, failure to supervise a subordinate, a plainly disproportionate investment. Mere failure stays out: a lost industrial bet, made in good faith and on reasonable information, remains business risk. The judge assesses the conduct at the time of the decision, not its outcome. That brings the notion close to the business judgment rule without merging with it, since French law has no presumption of regularity. The action is time-barred three years after the harmful act or, if it was concealed, after its discovery (article L. 225-254). For the D&O (directors and officers) underwriter, mismanagement is the core of the insured risk. Unintentional by definition, it falls outside article L. 113-1 of the Insurance Code, and most derivative actions and asset shortfall actions rest on it.
Textbook case: the chief executive of a midsize company signs the acquisition of a foreign business without due diligence, against the written advice of the audit committee. The target turns out to be loss-making. In this example, shareholders bring a derivative action and claim 12 million euros. They invoke neither statute nor the articles, only mismanagement. The D&O (directors and officers) policy advances defense costs; the judge will decide whether skipping the diligence was recklessness or business risk.
mismanagement, management fault, fault in management, breach of duty of care
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