December 20, 2013 By: Maria Grechishkina In the year 2013 Russian law received an unprecedented interpretation of what is known in the Western legal doctrine as fiduciary duties of the corporate officers and directors. The term “Good Faith” is not a complete novelty to the Russian Civil Law. However it is the first time the concept of “Good Faith” is defined as a fundamental principle of the Russian civil law. The amendment to the Article 1 of the Civil Code imposes an obligation on individuals and legal entities to act in good faith and prohibits them from benefiting from their own unlawful or bad faith behavior. The concept further received important clarifications by the Plenum of the Supreme Arbitrazh Court in the Resolution No. 62, dated 30 July 2013:

• An officer is deemed liable if he acted in bad faith or unreasonably

•  An officer can be held liable:

 –          for the same actions committed by the company’s contractors and/or employees;

–          for entering into transactions on disadvantageous conditions;

–          if company is held liable for administrative or tax violations as a result of his bad faith or performance of actions against all sense;

• A general director cannot avoid liability even if his actions that were approved by the company’s Board;

•  An officer can face burden of proof per court order if he refuses to provide explanations for his actions or if his explanations are deemed insufficient, when the company incurred damages which might be through the officer’s actions;

• An officer can avoid liability if:

 –          an officer’s actions may be considered a reasonable business risk;

–          company obtained recovery for damages of losses;

–          the officer voted  against or did not vote for a decision that resulted in damages;

–          the unfavorable transaction was part of a series of related transactions that altogether should have been profitable;

–          The director could not have been sure as to the unlawfulness of his or his company’s actions due to the absence of a unified, official position of state authorities (should damages be imposed as a result of administrative liability).

For more on changes in the legislation regulating liability of the officers a Russian company and the Russian Civil Law reform please contact: Maria Grechishkina mgrechishkina@mslegal.com or Sergey Sokolov ssokolov@mslegal.com