Grounds for a Liability Claim Against a Director
Where an entrepreneurial society has suffered damage through the act or omission of a managerial person — a director — the law regulates several routes to its compensation. Article 50 of the Law of Georgia on Entrepreneurs establishes the general ground: the managerial person answers to the society for damage caused by the culpable non-performance of the duty of good faith. On this page we explain the procedural side of this claim: who may bring the suit, how release from liability is constrained, within which time limits the claim falls, and how the shareholder-derivative-suit institution operates.
The substantive analysis of the ground — the standard of the duty of care, the prohibitions on competition and corporate opportunity — is a separate subject; the emphasis here is precisely on how the breach turns into a court claim and which procedural steps are decisive in terms of time.
Who Initiates Liability
Article 50 itself names the holders of the claim: the right to demand compensation for damage caused to the society by a managerial person belongs to the management organ, another managerial person and the supervisory board, and, in cases provided by law and by the established procedure, to each partner. The charter may additionally define another person holding this right.
For a joint stock company, Article 221 regulates the competence precisely: the general meeting, the supervisory board of the JSC and the management organ may, within their own competence, demand compensation for damage caused to the society by members of those organs. By decision of the general meeting, the supervisory board or the management organ may be charged with demanding compensation from officials. Such a decision must be executed within 6 months of its adoption, and the meeting may appoint a special representative for its execution.
Joint Liability and the Limits of Release
Article 55 governs the situation where an obligation is non-performed through the act or omission of several managerial persons — in that case they answer to the society jointly and severally. Joint liability gives the claimant a practical advantage: the claim may be brought in full against any one of them.
Release, however, is strictly constrained. The general meeting may decide to waive the damage claim or to settle with the wrongdoer, but the decision stands only if it is not opposed by partners owning at least 10 percent of the votes. A minority group of partners can thus block the release of the wrongdoer. The managerial person is likewise released from the obligation if, by the action, the person was executing a decision of the general meeting; and a managerial person whose own release is being considered is barred from voting on that question. Finally, liability for damage caused by intentional non-performance cannot be excluded either by the charter or by the employment contract.
Time Limits of the Claim
Article 92 sets the limits that are decisive for claims against a managerial person. The general limitation period for claims arising from legal relationships regulated by this law is 5 years, and in the relevant cases the corresponding norms of the Civil Code of Georgia on limitation apply. Under the same law, the general period for deviation (avoidance) is 6 months, counted from the moment the person holding the right of deviation knew or should have known of it.
The practical conclusion is simple: managing time from the discovery of the damage is decisive. The 5-year limitation is the general barrier, though special periods may operate in particular cases — which is why computing the deadline for each claim is a matter for early involvement of counsel.
The Shareholder's Derivative Suit
Article 222 regulates the institution that gives shareholders a voice where the society remains passive: one or more shareholders may bring a suit in their own name and for the benefit of the society — including against officials of the society — demanding compensation for damage or the transfer to the society of a benefit received in substitution for the damage.
To be regarded as a proper plaintiff, the shareholder must meet two conditions. First: 90 days must have passed since the written demand to the society to initiate the suit, unless the society refuses to initiate it before the expiry of that period or compliance with the period could cause irreparable damage to the society. Second: the court must find that satisfying the shareholder's demand does not contradict the predominant interest of the society. The society may, by agreement with the shareholder, intervene in the suit at any time. If the shareholder is deemed a proper plaintiff, the society must reimburse the expenses connected with the suit within reasonable limits; if deemed improper — the shareholder reimburses the society's reasonable expenses.
Frequently Asked Questions
Who may claim damages from a director?
The management organ, another managerial person and the supervisory board, and, in cases provided by law, each partner; in a joint stock company, Article 221 extends this competence to the general meeting, the supervisory board and the management organ.
Can the partners release a director?
The meeting may waive the claim or settle, but the decision is not adopted if partners owning at least 10 percent of the votes object; liability for intentional harm cannot be excluded at all.
Within what period does the claim fall?
The general limitation period for claims under this law is 5 years; the general deviation period is 6 months from the moment the holder knew or should have known of the right.
How does a shareholder bring the suit?
First the shareholder must apply to the society in writing demanding initiation of the suit and wait 90 days (or receive a refusal), then bring the suit in the shareholder's own name for the benefit of the society.
How We Help on Legal.ge
The attorneys at Legal.ge offer the full cycle in managerial-liability cases: we establish the damage and culpability, prepare the decisions of the society's organs and the claims, determine the claim periods and, where necessary, employ the shareholder-derivative-suit institution under the procedure of Article 222.
If your society is claiming damages from a director — or, conversely, you are a director facing a claim — contact us at Legal.ge: we will assess the case, compute the deadlines and build the position on the exact norms of the law.