Director Liability - Where Business Risk Ends and Personal Assets Begin
A director acts in the company's name but answers with their own assets if they breach a duty. The line between the two is exactly where disputes arise: is a loss-making contract business risk or negligence? Is a personal deal with the company's client initiative or a conflict? Is a late tax payment a cash-flow problem or the director's personal fine? The law answers these questions with two duties, care and loyalty, and one defence: the business judgment rule.
This page reads from both sides. For the company and its partners: how to claim damages from a director, which acts are breaches, and how to remove a director so that the court does not reinstate them. For the director: what protects you (a documented decision, a disclosed conflict, a service agreement, insurance), when liability becomes personal and when criminal, and how to leave a company without the liability following you.
Updated · Practice area: Corporate lawyer
Typical Situations - Which Is Business Risk and Which Is a Breach of Duty
The court judges a director not on losing but on process: how the decision was made, in whose interest and on what information. The table draws that line on concrete examples.
A Claim Against a Director - From Suspicion to Compensation
Obtaining information and documents
Through a partner's information right or by the company's new management: contracts, transfers, meeting minutes, the director's correspondence. By court order, bank statements and third-party documents. A case against a director is won on documents, not suspicion.
Qualifying the breach
Which duty was breached: care (negligence, a decision without information) or loyalty (conflict, usurpation), and exceeding authority under the charter. A breach of loyalty excludes the business judgment defence, so the lawyer builds the claim on loyalty wherever possible.
Calculating damages and causation
The company's real loss: the overpayment, lost profit, fines, a lost contract, by audit or expert calculation. Causation between the director's act and the loss is the most contested element, proved with comparative market data.
Choosing the claimant
The company itself (through a new director or by meeting resolution), or a partner in the company's name if the company does not claim; damages go to the company. Creditors, in an insolvency case. Each has its own procedural precondition.
Security and negotiation
Attachment of the director's personal assets together with the claim; in parallel, negotiation: former directors often agree to partial compensation in exchange for closing the liability and avoiding the criminal prospect.
Removal in parallel
If the director is still in office: removal by meeting resolution, a registry change, revocation of access and signatures the same day. The lawyer structures the removal so that the director's claim for unlawful removal finds no ground.
You Are a Director - What Protects You and How to Leave a Company Without the Liability
The director's main protection is the business judgment rule: the court does not examine whether the decision was right if it was made on an informed basis, in good faith and without personal interest. The practical form of that protection is documentation: a written rationale for important decisions, alternative offers, an expert's or lawyer's opinion, partners informed. A director who has the decision "on paper" is protected; one who does not answers for the loss.
The second protection is disclosure of conflicts: any transaction in which the director or someone close to them has an interest is notified to the partners in advance and in writing and concluded with their consent on market terms. A disclosed conflict is not a breach; a hidden one always is. The third is the director's service agreement: the scope of authority, remuneration, compensation on early removal, liability insurance (D&O) at the company's expense; these are the clauses written at appointment and read at removal.
And the exit: a director's liability does not end on leaving office; it remains for the period of their management, within the limitation period. A proper exit means handover of affairs and documents by act, an audit of the management period or a meeting resolution discharging liability (but not for what the meeting did not know), and a registry change on the day of leaving. A director who "stays" in the registry for years answers for other people's acts too.
Removing a Director - Procedure, Compensation and Typical Mistakes
- At any time, without grounds
- The partners' meeting may remove the director at any time without justification, by corporate rather than employment logic. But the compensation and notice period in the service agreement remain in force.
- Meeting procedure
- Convening, quorum, agenda, minutes under the charter. A breach of procedure is a ground for voiding the resolution and "reinstating" the director, even if the removal was right on the merits.
- Registry and access
- A registry change on the day of the resolution; bank signatories, electronic signature, the tax portal, passwords the same day. A former director who "stays" in the registry keeps authority to act for the company towards third parties.
- Employment or corporate
- The director's relationship with the company is corporate, but if an employment contract exists in parallel (often for salary and leave), its termination follows the Labour Code, a double procedure the lawyer runs at the same time.
- Compensation
- Under the agreement: a fixed sum or months' salary on early removal; without one, only earned pay and the leave equivalent. On removal for breach (of loyalty), compensation is generally excluded if the agreement so provides.
- Handover of affairs
- A handover act listing documents, the seal, access and pending matters: protection for both sides, continuity for the company and, for the director, proof that everything was handed over and later matters are not theirs.
What Protects a Director - The Documents That Decide a Liability Case
- A service agreement with clauses on authority, remuneration, compensation and insurance, at appointment, not at removal.
- A written rationale for important decisions: alternatives, price comparison, an expert's opinion, partners informed; the "decision paper".
- Conflict-of-interest disclosure letters and partner consents for related-party transactions.
- Meeting resolutions on matters that are the partners' competence under the charter; such a decision taken by the director alone is an excess of authority.
- Monitoring of the financial position and recording of insolvency signs: partners informed in writing, the insolvency filing made in time.
- On leaving: a handover act, an audit or a discharge resolution, confirmation of the registry change.
Three Director Cases
A director who moved a contract to his wife's company
The company's main supplier "changed": the new supplier was the director's wife's company at a 20% higher price. Lawyer for the partners: the link established from the registry, price comparison, the conflict undisclosed. A derivative claim for damages and disgorgement of profit, removal without compensation. Settlement with full compensation.
A director sued over a "losing contract"
A new partner claimed 400,000 in damages from the former director for a contract that became loss-making when the market changed. Lawyer for the director: the decision rationale (comparison of three offers, partners informed by email, the market forecast at signing), no personal interest. The court applied the business judgment rule; the claim was dismissed.
A director who "stayed" in the registry for 3 years
A former director left the company verbally; nobody changed the registry; 3 years later a tax assessment and creditor claims in his name. Lawyer: proof of actual departure (correspondence, new job, no signatures), retroactive correction of the registry entry, separation of liability by period. Partly successful; a registry change on the day of leaving would have avoided all of it.
Questions About Director Liability
If the same person is both partner and director and harmed the company, whom do I sue?
The same person, in their capacity as director: the duties of loyalty and care attach to the director regardless of partnership. A derivative claim by another partner in the company's name; damages go to the company. For a majority-director, in parallel a challenge to meeting resolutions and, on abuse, a demand for buy-out of the share.
The company could not repay a loan. Can the bank claim my assets as director?
As a general rule no: the company's debt is the company's. Exceptions: a personal guarantee on the loan (banks often require one), a late insolvency filing with debts increasing, stripping assets to creditors' detriment, false accounts to obtain the loan. The lawyer checks the loan documents and the management period against these four risks.
I was removed as director by meeting resolution with no reason given. Can I challenge it?
Corporately, no reason is needed; a challenge only for breach of procedure (convening, quorum) or, where an employment contract exists, under the Labour Code. Compensation is claimed under the agreement. The lawyer checks the agreement and the minutes; procedural breaches are common and void the removal.
Does D&O insurance really exist in Georgia?
Yes, several insurers offer it: directors' liability insurance covers legal costs and damages for negligence, but not deliberate breach, fraud or fines. In large and investor-backed companies it is becoming standard; the lawyer writes the company's obligation to buy a policy into the director's agreement.
How long do I have to claim damages from a former director?
The company's claim against a director has a limitation period running from the breach or its discovery, several years under the law. In practice the main barrier is evidence: new management must analyse the documents in the first months after the departure, before counterparties and staff change.
Lawyers for Director Liability Cases
A director case is won on documents, for either side: for the company, on the breach and the damages; for the director, on the documented decision and the disclosed conflict. Within 15 minutes the coordinator connects you with a lawyer who handles corporate liability on the company's or the director's side.
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Call: 568 330 318A Director Harmed the Company - or You Are the Director Being Sued?
In a free consultation the lawyer assesses whether the act is business risk or a breach of duty, what evidence exists and which route (claim, removal, negotiation or defence) gets a result. The coordinator picks up the phone within 15 minutes.