Liability of General Directors in Russia
By Valeria Khmelevskaya, KBK Accounting
The Russian CEO, the General Director, is the sole executive body of a company. Compared to many other countries, the general director in Russia bears a significantly higher responsibility in front of state authorities.
In general, the General Director bears civil, administrative, disciplinary, and criminal liability. The General Director as the head of the company bears the “offcer’s liability” under the Administrative Code, which provides for fines and “disqualification”.
One important particularity under Russian law is that foreigners who work in Russia with a work permit can be banned from entering Russia (or expelled) if they have received two administrative fines (e.g. for crossing a red light). Even though this regulation has been heavily criticised by all foreign business associations in Russia, it remains unchanged and creates a risk to foreign CEOs working in Russia.
Certain administrative liability can be legally shifted from the General Director to employees (e.g. regarding labour safety and personal data protection), provided that necessary internal regulations have been correctly implemented and an employee has been appointed as the person in charge.
General Directors are therefore well advised to have their liability risks covered by a D&O insurance – which is also available in Russia. Under Russian law, the General Director is obliged to act in the best interest of the company, and to exercise his rights and obligations in good faith and reasonably.
A director is liable for damages which have been caused to the company due to his culpable actions or inactions. The Russian Supreme Commercial Court issued clarifications in 2013 concerning directors’ liability – which practically extended their liability. One of most important clarifications was made inter alia with regard to tax or administrative liability. The Supreme Court made it clear that General Directors have to take all necessary and suffcient measures to ensure the company complies with all its public law obligations – otherwise they are liable for the losses and damages caused to the company.
Valeria KhmelevskayaGGI member firm
Auditing & Accounting, Tax
T: +7 495 662 33 30
KBK Accounting is a reputable outsourcing firm and provider of a wide range of services, including tax accounting and bookkeeping, tax advisory, reporting and compliance, HR, and interim management.
Valeria Khmelevskayais a Partner, Lawyer, and Tax Consultant admitted to practice in Russia. She has over 20 years of experience of consulting in matters of Russian and international tax law. Ms. Khmelevskaya is also the Deputy Head of the Management Board and the Chair of the Committee for Taxes and Financial Reporting of the German-Russian Chamber of Commerce (AHK) and recommended attorney of the Austrian Foreign Trade Centre Moscow (Advantage Austria).
Published: Labour Law Newsletter, No. 08, Spring 2020 l Photo: Alexeiy - stock.adobe.com