(Applicable To Joint-Stock Companies Governed By Law No. 159 of 1981; Proceedings Take Place Before The Economic Court)
When are board members held liable for their actions?
Board members are liable—vis-à-vis the company, shareholders, and third parties—for fraud, violations of the law or the company’s Articles of Association, mismanagement, and abuse of authority. Examples include disposing of company assets at less than their value, entering into contracts with parties related to a board member under prejudicial terms, distributing fictitious dividends, or withholding material information from the General Assembly. As a general rule, a minor error in business judgment is insufficient grounds for liability; the court does not hold the board accountable for every decision that ultimately proves unsuccessful.
Can a shareholder file the lawsuit personally, or is this right exclusive to the company?
While the company is the primary party entitled to sue, the law permits a shareholder to file a liability claim on the company’s behalf and for its benefit if the General Assembly fails to initiate the action; this is known as a “subsidiary” or “derivative” action. Any awarded compensation accrues to the company, not the plaintiff shareholder. Minority shareholders cannot be deprived of this right by a General Assembly resolution, as doing so would render oversight mechanisms meaningless. The governing legal provisions should be consulted regarding any requirements concerning ownership thresholds or prior notification.
What evidence establishes liability in a claim against a joint-stock company’s board of directors?
Such claims cannot be won based on general accusations; the strongest evidence consists of
Minutes and resolutions of the Board of Directors and the General Assembly. The contracts and documents subject to the violation, and a comparison of them against prevailing market rates.
The auditor’s report and any observations or reservations contained therein.
A report by an accounting expert appointed by the court to determine the extent of the damage and the causal link between the act and the loss.
Company records that shareholders are legally entitled to inspect.
The expert’s report is often the decisive factor, as it translates the allegation into a specific monetary figure.
What is the statute of limitations for the lawsuit, and can the right to sue be extinguished by the General Assembly’s ratification?
The liability lawsuit is subject to a limitation period commencing on the date of the General Assembly meeting that ratified the Board of Directors’ report; this period is generally one year, unless the act constitutes a misdemeanor or a felony, in which case this specific limitation period does not apply in the same manner. The General Assembly’s ratification of the balance sheet does not cover violations that were undisclosed or concealed from it; concealment nullifies the effect of the discharge of liability. Therefore, the limitation period is calculated from the date of the ratifying General Assembly meeting, not from the date the violation was discovered.
What are the consequences of a judgment holding joint-stock company members liable?
The court orders compensation to be paid to the company for actual damages incurred. Members are held jointly and severally liable if they participated in the act; exemption is granted only to a member who proves they objected to the decision in the meeting minutes and notified the auditor. Consequences may extend to the member’s removal or a demand to bar them from holding administrative positions, in addition to potential criminal liability if forgery or embezzlement is proven. Consequently, every member is advised to record their objection in writing regarding any decision they deem to be in violation of the law or regulations.