Management and Service Agreements in Light of Recent Legislative Reforms

There have been, several significant legislative reforms in the past few years. Firstly, the B2B Law entered into force on December 1, 2020. Subsequently, civil contract law was reformed and codified in Book 5 of the Civil Code, which entered into force on January 1, 2023. Finally, the law governing extra-contractual liability was modernized and incorporated into the new Book 6 of the Civil Code, effective January 1, 2025.

These reforms should encourage companies to review their contracts to protect their interests and mitigate new risks. In this Newsflash, we will focus on the necessary amendments to management and service agreements, which – whether linked to a corporate mandate or a consultancy engagement – constitute critical contracts within a company.

A management agreement is an agreement in which the management of the company is entrusted to either a natural person or a legal entity in exchange for remuneration. Such agreements are traditionally concluded with corporate officers (directors and/or daily managers). Additionally, a service agreement may be entered into with a service provider delivering specific services to the company.

Recap: B2B law – key considerations

The provisions of management and/or service agreements must comply with the B2B Law.

This law stipulates that any clause which, individually or in combination with others, creates a manifest imbalance between the rights and obligations of the respective parties, is null and void. This general prohibition is complemented by a list of contractual clauses which are always unlawful and therefore prohibited (the so-called "blacklist") as well as a set of contractual clauses presumed unlawful (the so-called "grey list"). Given that this law restricts contractual freedom, it is crucial to verify that agreements do not contain any such non-compliant clauses.

This law may affect key provisions in management and/or service agreements, such as, for example, those relating to variable remuneration, non-compete obligations, and termination terms.

Reform of the Civil Contract Law– New Book 5 – Key considerations

Book 5 of the new Civil Code, which reformed the civil contract law, entered into effect on January 1, 2023.

There are a number of significant principles that have an impact on the penalties the parties may invoke in the event of a contractual breach, such as extrajudicial substitution, price reduction, and anticipatory breach (or advanced termination). Regarding the latter, Article 5.90 §2 of the Civil Code states that a party may subject to certain conditions terminate the contract if it is clear that the debtor will not perform on the due date. The provision concerning the advanced termination is of supplementary law, allowing parties to specify conditions contractually or fully exclude the possibility of the advanced termination.

The introduction of hardship or unforeseeable change of circumstances (Article 5.74 of the Civil Code) will have a direct impact on the drafting of management agreements and/or service agreements within your company. This theory allows a contracting party to request his co-contractor to renegotiate the contract if circumstances which could not be reasonable foreseen arise that are not attributable to the debtor, did not exist at the time the contract was concluded, and make the performance of the contract excessively burdensome. Since the theory of hardship is also of supplementary law, it is important to devote attention to the wording of contracts. Parties can waive or limit the application of the doctrine.

Reform of the Law of extra-contractual liability – New Book 6 – Key considerations

The reform of the rules on extra-contractual liability law came into effect on January 1, 2025, abolishing the quasi-immunity of the auxiliary person, as well as the prohibition on the concurrence of contractual and non-contractual liability. Due to the reform in legislation a extra-contractual liability claim can be filed by third parties against service providers and directors 

From now on, directors and service providers engaged by a company may also be held liable by third parties for mistakes they commit. The question then arises whether they can be protected against this through contractual provisions in the relevant contracts.

Initially, it is possible to limit the extra-contractual liability of service providers and directors through clauses in the contract between the company and its clients/principals (the so-called "main contract") or in the general terms and conditions.

The second option is to limit the liability of the service provider in the agreement he concluded with the company (the so-called "subcontract"). Note that this is not possible for a director mandate. Furthermore, the company may include a commitment in its agreement with the service provider and director that it will always negotiate in good faith with clients/third parties to exclude or limit the extra-contractual liability of the service provider/director to the extend possible. 

Finally, the company could confirm in the same "subcontract" that it will indemnify the service provider if they are held liable for third-party claims. However, this waiver clause cannot be applied to director mandates.

The question of course arises is to what extent the company is willing to offer far-reaching protection to its auxiliaries...

In any case, it will be useful to review both the "main contracts" and general terms and conditions, as well as the "subcontracts," in light of these recent developments and, where appropriate, incorporate the necessary protective mechanisms.

Action point

It is essential to thoroughly review your contracts, in light of the aforementioned legislative changes. Of course, we are also available to assist you in this process.