Business owners periodically face a situation when a company director, through his negligent or intentional actions, causes great losses to the business.
Sometimes the consequences of such actions can be detected already after the dismissal of the director, and it seems that it is impossible to bring the former director to justice.
However, this is not the case, and in this article we will analyze what responsibility the director bears and how it is possible to bring him to such responsibility. We will not touch here on the administrative and criminal liability to which the company's officials can be brought by the control bodies, but we will focus on the responsibility of the director before the company and its owners.
Therefore, such responsibility can be conditionally divided into two subtypes:
- responsibility for damages;
- liability in case of threat of insolvency and for bankruptcy.
In this article let's talk about the director's responsibility for damages.
In view of the legislation, the director of the company is liable to the company for damages caused to the company by his culpable actions or inaction.
There can be many situations when the director's actions or inaction led to damage to the company - from the director charging himself an inflated salary to committing acts that are not related to the company's economic activity.
Since it is possible to bring the director to justice only through the court, below we will list some interesting, in our opinion, court cases where the director was held responsible for his actions.
Calculation and payment of wages in an inflated amount:
The limited liability company "Dil Tsentr" filed a lawsuit against the former director for the recovery of 264,468.52 hryvnias in damages, citing the fact that the director accrued and paid himself an unreasonably inflated monthly salary. During the consideration of the case, it was established that the director independently approved the staff list of the company, which increased his salary. Because the members of the company did not agree on an increase in the director's remuneration, then the court satisfied the company's claim, and all subsequent instances left the decision of the first instance unchanged (case 914/3433/21).
Carrying out actions that are contrary to the interests of the company:
PJSC Kharkiv Tractor Plant named after S. Ordzhonikidze" tried to recover damages in the amount of 29,549,853.54 hryvnias from the former director, due to the director's unjustified expenses for business trips and the conclusion of a number of agreements, the reality of which and the connection with the company's economic activity are doubtful.
Therefore, the director purchased goods and services, in particular, from a natural person-entrepreneur, whose main activity is the cultivation of grain crops (except rice), leguminous crops and oilseeds, on the other hand, the main activity of the company is the production of machines and equipment for agriculture and forestry .
The Supreme Court, as part of the panel of judges of the Cassation Economic Court, during the consideration of this case, made the following conclusions (decision dated 06.24.2020 in case No. 922/2187/16):
Persons acting on behalf of a legal entity are obliged to act not only within the limits of his authority, but also in good faith and intelligently. Between the business company and its official (in particular, the director or general director) in the course of activity, a relationship of trust is formed, in connection with which the illegal behavior of the specified person can be expressed not only in his failure to fulfill the duties expressly established by the founding documents of the company, or exceeding authority when performing certain actions on behalf of the company, and in the improper or dishonest execution of such actions without observing the limits of normal economic risk, with personal interest or when abusing your discretion, making obviously imprudent or wasteful decisions.
The case was considered twice by the Supreme Court, and as a result, the company managed to prove that it suffered losses in the amount of 8,592,727.83 hryvnias.
Erroneous payment of tax contrary to the interests of the company:
"Agrocenter-Ukraine" LLC sued the former director for damages in the amount of 1,406,689.28 hryvnias due to the fact that he unjustifiably made tax payments at the expense of the company's funds instead of natural persons - owners of land plots.
Since the terms of land lease agreements did not provide for the company's obligation to pay land tax instead of the lessors, the director's actions to pay such tax to the budget caused real losses to the company.
The director's actions were classified as erroneous payment of tax. At the same time, the Supreme Court, as a member of the panel of judges of the Cassation Economic Court, made the following conclusion (decision dated February 24, 2021 in case No. 904/982/19):
Such a mistake shows the director about his improper performance of statutory duties, lack of due diligence when disposing of company property (money). This case refers to an error in the payment of tax, which did not arise as a result of the inadequate quality of tax legislation, that is, the confusion (ambiguity) of legal regulation, the presence of conflicts between its norms, their unequal interpretation by the payer and the tax authority, unequal judicial practice, complex tax calculation procedures ( definition of the object, the tax base, the tax rate or the order of its calculation), and in a situation characterized by legal certainty. And the director of the company, in the case of proper performance of his duties, showing reasonable prudence, should not have made such a mistake.
However, the Supreme Court took into account that the director of the company had no personal interest in erroneous transfer of tax amounts to the budget and reduced the amount of damages to be recovered from the director to 10% from the amount of damages.
The practice of bringing the director to justice is becoming quite common, and companies really manage to recover damages from former managers. Therefore, if you, as a business owner, have discovered questionable operations of the company manager, which indicate probable damage to the company, then remember the possibility of recovering such damage and contact us for help.
