The Plenum of the Supreme Arbitration Court passed Ruling No. 62 which describes the principal approach of the Russian courts in relation to compensating for the lossess caused to companies by their general directors, members of the board of directors, management boards, heads of collective executive bodies (the director) and others (the Ruling).

The Ruling confirms that in the event that a director’s actions are shown to be unfair and/or unreasonable, the director will be liable to the legal entity which suffered the loss. The Ruling states which actions of a director could be qualified as unfair and unreasonable (e.g. acting beyond the director’s powers without the required approval of decision-making bodies, concealing information with regards to completed transactions or providing false information on them and acting when there is a conflict of interest between the director’s personal interests and that of the company, etc.).

The Ruling states that the fair and reasonable performance of a director also includes ensuring that a legal entity properly complies with its public and legal obligations (e.g. tax, administrative duties, etc.). In the event that the legal entity suffers public and legal liability as a result of the director’s actions deemed as being unfair and/or unreasonable, then damages may also be recovered from the director.

Further, the Ruling provides that a director is liable to the company for loss caused by his/her unfair and/or unreasonable procurement of actions/omissions by representatives, counterparties under civil law contracts, employees of the company and the improper arrangement of the management structure. Approval of the director’s actions by the decision-making bodies of the company or where the action of the director was made in performance of the instructions of those bodies, shall not release the director from the obligation to pay damages since the director bears a separate obligation to act reasonably and in good faith in the best interest of the company. In this circumstance, the members of the named corporate bodies shall bear joint and several liability along with the director for the loss caused to the company (except for those members who did not take part in the voting or who voted against the relevant decision).