Investor-appointed directors are common in start-ups and private equity structures. While their appointment is typically intended to give investors greater oversight over their investment, a recent judgment of the Ghent Enterprise Court provides a useful reminder: once appointed as a director, one must act as a director and not merely as a representative of the investor.
What did the Court decide?
The case concerned a start-up in financial difficulties with a collegiate board of directors, including the founder and a director appointed upon the nomination of the investors, who had previously invested in the start-up following a funding round. The investor-appointed director, the so-called “B director”, argued, among other things, that the founder was responsible for the company’s operational management and had failed to provide complete and reliable information to the board.
In its judgment dated 5 August 2026, the Court nevertheless stressed the B director’s own responsibilities. As part of a collegiate board, the B director shared responsibility for the management of the company and was expected to actively inform himself about the company’s situation instead of passively awaiting information provided by a fellow director or the founder. According to the Court, the B director had behaved primarily as a representative of the investors rather than as a director of the company.
When the company’s financial situation deteriorated further, the Court considered that the B director should have taken a more active role. Ultimately, the Court found that the B director incurred liability under Article XX.227 of the Belgian Code of Economic Law for continuing the company’s activities when there was manifestly no reasonable prospect of avoiding bankruptcy.
What does this mean for investor-appointed directors?
Belgian company law requires all directors to actively and diligently perform their duties and, where the company’s continuity may be at risk, to assess the situation and take appropriate measures. Against this background, directors cannot remain passive or simply rely on other board members, particularly not when warning signs emerge.
The judgment particularly highlights that a board mandate requires an active approach. Directors are expected to actively inform themselves about the company’s situation. They cannot merely wait for information to be provided by another director or the founder, particularly where irregularities have already been identified or where there are reasons to question the reliability of the information being provided.
An investor-appointed director should in particular:
- distinguish the interests of the investor from his/her role as director of the company;
- remain sufficiently informed about the company’s financial and operational position;
- question incomplete, inconsistent or unreliable information, rather than simply relying on information provided by the founder or management;
- act on red flags, particularly when the company’s financial situation deteriorates;
- remain objective when the company is in financial difficulty; and
- duly document the board’s decision-making.
Importantly, the Court accepted that continuing the business at an earlier stage of the company’s financial difficulties was not manifestly unreasonable. What mattered was whether the directors acted as normally prudent and diligent directors would have acted in the same circumstances.
Takeaway
Directors are not expected to ensure that every business decision is successful. They are, however, expected to remain informed, critical and proactive, particularly when the company’s financial situation deteriorates.
The fact that a founder remains responsible for the day-to-day operations of the business does not relieve the other members of a collegiate board of their responsibilities: investor-appointed directors must remain sufficiently informed, critically assess information and take appropriate action when warning signs emerge.
Even though the judgment does not introduce a fundamentally new standard of directors’ liability, its practical message is nevertheless important, particularly in a venture capital and private equity context: a board seat is not merely an investment protection mechanism. It comes with duties and responsibilities.
If you have any questions about the appointment of directors or their liability following an investment, feel free to reach out to the authors of this article.
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This newsletter is not a legal advice or a legal opinion. You should seek advice from a legal counsel of your choice before acting upon any of the information in this newsletter.