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CEO responsobilities

How to punish the company director general who has committed abuse of authority

It is very often that our Law Firm is referred to by business owners, participants of a LLC or stockholders of a JSC requesting help to prosecute a thieving hired director general of the company. In all cases, the situation looks identical; the director general commits criminal abuse of authority, causing loss to the company and benefiting from that.

Here are just some examples that fall under the concept of ABUSE OF AUTHORITY:

  • The unfair director general has created a parallel business structure controlled by him personally and he withdraws some customers and cash flows from the business of the owners;
  • The unfair director general handles a part of orders from customers of the company in cash, and pockets the money;
  • The unfair director general has leased or sold the company’s assets at a lower price, he gets the money in cash kickbacks from a leaser or buyer and pockets them;
  • The unfair director general has transferred the rights to a trademark or a patent owned by the company to persons friendly to him, at low price;
  • The unfair director general has reregistered the domain name owned by the company on his name.

In all these cases, the owner tries to punish the director general of the company and recoup his losses. For many, apart from the material aspect, this issue becomes a matter of honor, and the only way to maintain discipline of the company’s personnel.

The lawyers of UKT Group will help you prosecute the unscrupulous executive and compensate for losses from abuse. For over 10 years we have been specializing in the field of corporate security and business law, and we know how to prove a violation of the law and how to put into practice the concept of responsibility of the director general of a company.

Responsibility of the CEO:

Criminal liability of the director general

The most effective way that allows to punish the director general of a company and to recover damages, is a criminal prosecution and filing a civil claim in the criminal process.

Article 201 of the Criminal Code on ‘Abuse of authority’ establishes liability of the director general for the use of office contrary to the legitimate interests of the company in order to reap benefits and advantages for himself or other persons or harm other persons, if the act caused significant damage to the rights and legitimate interests of citizens or legal entities or the legitimate interests of society or the state.

This is the most effective Article to deal with unscrupulous corporate executives. The Article is widely applied by the investigating authorities and courts and makes it possible to bring to justice the unfair director general.

Civil liability of the director general

The basic rule of law, which allows promoters to bring a director general to responsibility for inflicting damages to the company is clause 3 of Article 53 of the Russian Civil Code. This rule provides for the right of the founders of the legal entity to request from the head to recompense damages caused to the company.

According to Art.277 of the Labor Code of the Russian Federation, “the executive is fully liable for any direct actual damage caused to the company”. This Article is consonant with Art. 53 of the RF Civil Code, with the distinction being that the responsibility of the director general under the RF Civil Code is not limited to actual damages, but also for loss of profit by the legal entity.

The causes to bring a director general to civil liability are as follows:

  • Violation by the company head of the principle of reasonableness and integrity in the management of the company;
  • Contempt of certain law regulations by the company head.

Violation of principle of reasonableness and fairness by the company CEO

The responsibility of the director general of the company for the violation of the principle of reasonableness and fairness is established by Article 71 of the Federal Law ‘On Joint Stock Companies’ and the Article 44 of the Federal Law ‘On Limited Liability Companies’.

A typical case of violation of this principle is the situation where the executive unlawfully disposes of the company’s property.

The responsibility occurs for the sole executive body’s wrongful actions or inactions, which have led to the company’s losses. Bringing the director general to responsibility may be carried out both by the company itself and by stockholder or participants of the society, by way of filing a lawsuit for damages against the company executive.

The fact to be proven in such a case would be both having suffered the losses and the fault of the executive. In this case, the court judgment of conviction against the executive under Art. 201 of the RF Criminal Code — abuse of authority — would have the prejudicial character, and bringing to responsibility the director general will not require proving his guilt.

Violation by the company CEO of special provisions of the law

The responsibility of the company head occurs as well when he breaks special provisions of the law. Here are some of them:

  • Violation of securities law (i.e. signing a prospectus that contains invalid data; in this case bringing the director general to responsibility and recovery of damages may be on the part of both the stockholder of the company and the potential buyer of stock).
  • Violation of bankruptcy law (such as the subsidiary responsibility of the director general to creditors in case of not submitting a petition by the debtor for bankruptcy, as well as in case of bringing the company into bankruptcy).

Administrative liability of the director general

The Code of Administrative Violations can be used for punishing the director general of the company administratively.

Article 14.21. The RF Administrative Code provides for administrative liability for the director general for the improper management of the legal entity, namely for the use of authority to manage the company contrary to its legitimate interests, and (or) the legitimate interests of its creditors, which led to a decrease in equity capital of the company and (or) to the occurrence of losses in the company.

Article 14.22 of the Administrative Code establishes the responsibility of the director general for concluding transactions or committing other acts as executive beyond his competence.

If you were looking for answers to the questions:

  • How to punish the director general of the company
  • How to punish the head of the legal entity;
  • How to bring to justice the director general;
  • What is the responsibility of the general director of the company;
  • What is the responsibility of the head of the legal entity;
  • How can the unfair director general cause losses to the company;
  • What is abuse of authority

— Contact lawyers of UKT Group by phone +7-499-250-63-42 and get professional legal assistance.