On 30 July 2025, the Supreme Court published a Review* of the Practice of Arbitrazh Courts’ Consideration of Cases on Corporate Disputes Related to the Application of Article 53.1 of the Russian Civil Code (the “Review”). This article gives a company the opportunity to recover damages from its director caused during exercise of the managerial powers.
The 48-page Review summarises court practice on conflict of interest, director’s remuneration, use of company assets for own needs, grounds for director’s liability, approval of transactions, liability of a “shadow director”, limitation of director’s liability by an agreement (indemnity), and application of limitation periods in claims against company directors.
We have analysed the Review and prepared a summary for you.
Conflict of interest
Remuneration of a director
Utilisation of company assets
Grounds of liability
Approval of transactions and claims against a director
Liability of a “shadow” director
Limitation of liability agreement (indemnity)
Limitation period for claims against a director
Conclusion
The review not only elaborates on the courts’ approaches to holding directors liable for company losses and consolidates case law but also underscores the need to strike a balance between protecting businesses from misconduct and shielding acting-in-good-faith directors from unjustified liability, which is a key principle for Russian corporate governance.
* In Russian
Contacts:
The 48-page Review summarises court practice on conflict of interest, director’s remuneration, use of company assets for own needs, grounds for director’s liability, approval of transactions, liability of a “shadow director”, limitation of director’s liability by an agreement (indemnity), and application of limitation periods in claims against company directors.
We have analysed the Review and prepared a summary for you.
Conflict of interest
- If a director has not disclosed a conflict of interest in relation to a loss-making transaction, it is presumed that the company’s losses are attributable to the director’s actions (paragraph 1). If, on the other hand, the director has disclosed an interest in the transaction, it is presumed that the director acted in the company’s interests in making the transaction (paragraph 2).
- A conflict of interest between the director and the organisation may be proven with evidence of both formal and actual affiliation (paragraph 3).
Remuneration of a director
- A director may not increase his/her remuneration at his/her discretion. Such remuneration may be recovered as damages (paragraph 4).
- If a director withdraws funds from the company under the guise of increased payments in favour of subordinates (bonuses, dismissal compensation), he/she is obliged to compensate for these losses (clause 8).
Utilisation of company assets
- A company may recover damages (including lost profits) caused by the use of its assets for the personal benefit of a director or third parties (paragraph 5). The minimum amount of damages is equal to the amount of profit gained by those persons (paragraph 6).
- A director is entitled to spend company funds on himself/herself and others if the expenditure is intended to protect the interests of the company. Lawyers hired by the company for defence may also defend the director and other employees of the firm (paragraph 7). In such a situation, the bills paid by the firm for the defence of the director and employees do not qualify as damages and cannot be recovered from the director.
Grounds of liability
- A change in the company’s development plans and the appointment of a new director following a change of ownership does not indicate that the actions of a previous director were wrong. If his/her actions were consistent with ordinary business risk, he/she is not liable for adverse consequences in connection with his/her decisions and transactions (paragraph 9).
- A director is responsible for the reasonableness of his/her endeavours to manage the company, but cannot be held individually responsible for its success. The failure of the company to achieve specific targets (e.g. sales and revenue) does not represent a basis for a director’s liability. He/she is also exempt from liability for actions designed to minimise damage to the company’s interests (paragraph 10).
- A director must put in place a management system to ensure due diligence in selecting and vetting counterparties. If there is no such system, the director is liable for losses incurred by the company due to breach of contracts by unreliable counterparties (paragraph 12).
- The obligation to form the company’s assets rests with its members. Therefore, the director is not liable for losses caused by the insufficiency of the company’s assets and the inability to raise additional finance (paragraph 13).
- Bringing a company to public law liability (administrative, tax) does not in itself create an obligation for the director to compensate the company for losses. Such a duty arises when the director fails to observe the principles of reasonableness and good faith in his activities (paragraphs 14 and 15).
Approval of transactions and claims against a director
- The execution of a major transaction without corporate approval does not in itself give rise to a claim for damages against a director if his/her actions were in the interests of the company (paragraph 20).
- A member of a company may approve a transaction by his/her tacit behaviour. Such approval is evidenced by the fact that there was no objection to the way the company is managed – but only if the company’s participants have full knowledge of the state of affairs. This approval remains valid even in the event of a change of ownership of the company (paragraph 16).
- A director may not rely on the approval of a transaction if such approval was invalid due to formal irregularities, for example, in the absence of a quorum (paragraph 17). An approval obtained by a director based on incomplete or concealed information is also invalid (paragraph 18). If approval is obtained from a company participant interested in the making of a transaction, it will not protect the director either (paragraph 19).
Liability of a “shadow” director
- A person who de-facto manages the day-to-day operations of a company is liable for losses as a formal director. The de-facto authority is confirmed by a set of facts: active participation of the “shadow director” (instructions to departments of the company, preparation of draft contracts and agreeing their terms, use of electronic signature) and ousting of the formal director from management (paragraph 22). A participant of the company acting to its detriment in its own interests will be liable on similar principles (paragraph 21).
Limitation of liability agreement (indemnity)
- The law prohibits limiting the liability of a director of a public company for bad faith and unreasonable behaviour. In other types of companies, it is not possible to limit a director’s liability for acting in bad faith. Therefore, an agreement to eliminate or restrict a director’s liability is null and void regardless of the form in which it is drawn up, including if it is set out in a resolution of a shareholders’ meeting or the company’s charter (clause 23).
Limitation period for claims against a director
- Where a director has concealed information about a transaction that creates a conflict of interest, the limitation period starts to run from the date on which the company (its members) had a real opportunity to learn about the transaction and the inconsistency of its terms with the interests of the company (paragraph 24).
- As a rule, the approval of annual financial statements by a member (shareholder) of a company does not start the limitation period for a claim against a director in respect of a loss-making transaction made in the reporting period. However, the limitation period may begin to run in a situation where the information submitted for approval of the annual accounts could have been used to infer a change in the company’s financial position and, consequently, the occurrence of losses, or where the accounts themselves were obviously distorted (paragraph 25).
- At the same time, a change in the composition of the company’s participants (shareholders) does not change the limitation period for a claim against a director for damages (paragraph 26).
Conclusion
The review not only elaborates on the courts’ approaches to holding directors liable for company losses and consolidates case law but also underscores the need to strike a balance between protecting businesses from misconduct and shielding acting-in-good-faith directors from unjustified liability, which is a key principle for Russian corporate governance.
* In Russian
Contacts:
- Igor Sokolov, Senior Associate, Dipsute Resolution, igor.sokolov@sl-legal.ru