What Happened
A director of a large company made a decision to enter into a transaction that resulted in losses of 50 million rubles. The company’s participants went to court — and the court ordered the director personally to pay that amount from their own assets.
This is not an exception. It is the predictable consequence of inadequate transaction approval documentation.
How a Director Becomes Personally Liable
As a general rule, a director does not bear personal liability for a company’s commercial risks. Business activity inherently involves the possibility of losses.
However, a court may impose personal liability on a director for damages if the director:
- acted in bad faith or unreasonably (Article 53.1 of the Civil Code),
- violated the procedure for approving major transactions or related-party transactions,
- failed to disclose material information to the participants before the decision was made,
- acted in self-interest to the detriment of the company.
The key word is “unreasonably.” Courts interpret this broadly: if a director cannot demonstrate the reasonableness of their decision at the time it was made, this is grounds for personal liability.
What Protects a Director
Proper Approval of Major Transactions
Transactions exceeding 25% of the company’s assets require approval by a general participants’ meeting or board of directors. The approval minutes must record:
- the subject and essential terms of the transaction,
- the commercial rationale (why the transaction is in the company’s interest),
- an assessment of risks,
- signatures of all participants.
If these minutes exist, the director fulfilled the duty to inform participants about the transaction. Liability for the commercial risk shifts to the company as a whole.
Independent Valuation and Expert Assessment
Before major transactions — particularly acquisitions or entry into new markets — an independent commercial valuation is advisable. The valuation report documents that the director made the decision based on professional analysis, not arbitrarily.
Documenting the Negotiation Process
Correspondence, commercial proposals, negotiation records — all of this creates an evidentiary record showing that the director acted reasonably and in good faith at each stage.
Corporate Agreement
If the company has multiple participants, the corporate agreement should clearly define the director’s authority: which transactions they may conclude independently, which require approval, and in what format.
The Practical Takeaway
A director who makes a transaction decision without proper approval and documentation carries personal risk equal to the amount of the losses — even if acting in good faith.
Protecting a director is not about evading accountability. It is about a document management system that records the reasonableness and good faith of every decision.
50 million rubles of personal liability is the price of the absence of one properly executed approval record.
Frequently Asked Questions
When does a director face personal liability for company losses? Under Article 53.1 of the Civil Code, a director is personally liable for losses caused by bad-faith or unreasonable conduct — including breaching the approval procedure for major transactions, failing to disclose material information, or acting in self-interest to the detriment of the company.
Is verbal authorisation sufficient for a major transaction? No. The absence of written approval minutes turns any unsuccessful decision into grounds for a personal liability claim under Article 53.1. Courts treat undocumented decisions as evidence of unreasonable conduct on the director’s part.
Which transactions require mandatory approval? Major transactions (those exceeding 25% of the company’s assets) and related-party transactions must be approved by the participants’ general meeting or board of directors in accordance with the articles of association and the LLC Law. A breach is a direct path to personal liability.
What specifically protects a director from a claim under Article 53.1? Approval minutes that include the commercial rationale for the transaction, an independent valuer’s or consultant’s report, and documented negotiation correspondence. One properly executed set of minutes provides solid protection — even if the transaction ultimately results in a loss.
Read Also
- Director Subsidiary Liability: 3 Mechanisms the Tax Authority Uses to Reach Personal Assets
- The 50/50 Business Deadlock: Three Mechanisms for Breaking the Impasse
If you’re a director looking to build a system that protects your personal assets from subsidiary liability, contact us for a written legal opinion. We also help structure corporate documentation for companies with multiple participants.