Board Member Held Personally Liable for Customer's Loss

In a recent judgment (LA-2025-112236), the Agder Court of Appeal held a board member personally liable for a customer's loss exceeding NOK 1.2 million, the amount the customer had paid to the company as a purchase deposit. The judgment serves as a timely reminder to board members of the responsibility they bear to ensure sound company operations and to remain informed about the business and its financial position. The judgment is not yet final and binding.

What happened?

The company imported and sold modular homes from China. Board member A owned half of the company and acted as a salesperson in the business. Customer B entered into a contract for the purchase and installation of a modular home for more than NOK 1.2 million, paying the full amount in advance in the autumn of 2022. The modular home was never delivered. Later it was discovered that the managing director, C, had over an extended period transferred funds from the company to himself, while no accounts were kept and no annual reports were produced. A obtained bank statements in the summer of 2022 showing a negative balance and more than 60 transfers to the managing director, which C claimed these were loans, an explanation A accepted. A maintained that he was unaware of both the managing director's misconduct and the company's overall financial situation, which later went into insolvency.

Mistakes that proved decisive

The court identified two matters in particular as the basis for its finding that A's conduct was negligent, and therefore gave rise to liability for damages under section 17-1 of the Norwegian Private Limited Liability Companies Act:

• Failure to monitor the company's financial position: From the time he joined in 2021, A had no real insight in the company's finances and took no steps to obtain such knowledge, beyond accepting the managing director's assurance that the financial situation was under control.

• Breach of the duty of loyalty: A was involved in the sale and was aware of the company's weak financial position at the time B signed the contract and paid the full contract sum in advance. The court found that B was thereby exposed to a far greater risk than he had reason to expect, and that A was under a duty to inform B and advise him against entering into the agreement. After B had paid, A took no steps to ensure that the company met this contractual obligation, nor did he do anything to protect B's interests when it became apparent that B could no longer reach C.

Key takeaways

A lack of knowledge and insight into the company's affairs can in itself constitute negligence. As a board member, you have an independent duty to familiarize yourself with and understand the company's financial position — and to demand such information if the managing director does not provide it voluntarily.

Customers and other counterparties to the company may hold you personally liable. Personal board liability is not reserved for cases where the company itself or its shareholders suffer a loss.

Always ensure that your actions as a board member are properly documented. It is of little use to have acted with due care if you cannot prove it.

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AGP is a law firm specializing in transactions, capital markets, and corporate law. We advise companies, board members, and shareholders on an ongoing basis in relation to liability matters and other issues of company law.

This article is for marketing purposes only and does not constitute legal advice.