Directors’ Duties in Russia

>> Liabilities and Penalties in Russia

Exercise your responsibilities carefully as the penalties for failure to do so can be severe.

You may be subject to administrative and criminal liability for certain violations of the law, including, but not limited to the following:

  • Approval of transactions prohibited by effective Russian legislation.
  • Violations of the corporate management rules (such as the failure to follow a lawful order or demand of a state authority official, misappropriation or embezzlement of the company’s property).

In addition, you may be subject to liability directly to the company for damages incurred to the company due to your actions. If several directors are guilty of breaching a duty, they are treated as jointly and equally liable. Most liability rules are mandatory, and it is impossible to modify them by contractual means.

In case of wilful acts, directors are liable under environmental and health and safety laws, under anti-trust law and insolvency laws.

The company cannot exempt directors from liability for damages caused to the company by their wilful actions in bad faith. The company cannot limit the liability of the directors.

Courts usually decide that the duty has been breached if (i) a director acted ultra vires, (ii) a direct intent to harm a company was proved or (iii) a violation of applicable law and regulations  is proved.

Company violations of the Russian public laws and regulations may lead to you being sued in  a personal capacity, together with the company. Ordinarily, this will result in a fine, in severe cases, imprisonment may be imposed.

The directors are directly liable to the company and indirectly liable to shareholders if they act in bad faith or unreasonably against the interests of the company. The directors are not liable to third parties. In case of the breach of duty, it may lead to disciplinary action being taken against you and/ or limitations upon you being able to continue acting in the role of the director or any other management body up to three years.

Directors bear criminal liability for theft, fraud and bribery, including commercial bribery. The company may incur administrative liability for bribery and commercial bribery committed  by directors.

Any fines paid by the company and any damages caused to the company by directors may be claimed from the directors.

In case of insolvency there are some additional grounds for triggering directors’ liability. For example, when the director does not report a company’s anticipated insolvency to the court, the directors may face claims from the company or a derivative claim by a shareholder.

Limitation of liability

The company cannot indemnity or limit in a any way the liability of the directors.

Delegation of authorities

You are not entitled to delegate any of your powers to other person(s).

Directors and officers (“D&O”) insurance

Directors often obtain liability insurance  coverage and it is usual for the company to pay the premium.

In Russia, defence costs may be significant, and are not refunded by the losing party.

Pure liability policies do not allow compensation of legal costs of directors.

Latest version updated 9th April 2018

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