Civil Liability of the Director of the Company for the Damages Caused to the Company Through Risk Decisions

Gintarė Jakuntavičiūtė

Abstract


Making business decisions is risky. When conducting their tasks, corporate directors will have to make decisions that involve the balancing of risks and benefits for the corporation. It is more or less inevitable that some of these decisions will turn out to be detrimental to the company and/or third persons, including the shareholders and creditors. On the one hand, the shareholders should be protected from the unlawful acts of directors. On the other hand, the directors also are in need of protection, since, due to the permanent threat of personal liability, the corporate directors might become overly risk averse, which is detrimental to the corporation as a whole. Therefore, it is important to find the proper balance between the right to take risky business decisions and the personal liability of the corporate directors.
In Lithuanian legal system there is no legal instrument that explicitly refers to the business judgement rule applicable to the common law countries, which constrains the fiduciary duty of care, shields corporate directors extensively from personal liability and insulates directorial decision-making from judicial review. The Lithuanian legal acts establish just fiduciary duties which can be treated as the statutory limits of the right to take risky business decisions. However, there is no common standard of judicial review. When reviewing business decisions, Lithuanian courts usually use such criteria as obvious maleficence, unjustifiable riskiness, rational business risk and good standards of business. However, these criteria are of an evaluative character and in different civil cases could be interpreted diversely. Therefore, we recommend to formulate a common rule which could be applied by courts in the process of business judgement evaluation. This rule substantially could be like a business judgement rule applied in the common law countries.

Keywords


company director; civil liability; risky business judgements; business judgement rule; breach of fiduciary duties

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"Societal studies" ISSN online 2029-2244 / ISSN print 2029-2236