The criminal and civil liability of managers and board members of Iranian companies (Part 1)

 

The criminal and civil liability of managers and board members of Iranian companies (Part 1)

• The criminal and civil liability of managers and board members of Iranian companies (Part 1)
  • What is the civil and criminal responsibility of directors and board members?
  • The responsibility of board members in joint stock companies
  • What is civil liability?
• The civil liability of directors and board members
  • Civil liability is of two types
    • 1) The usual responsibilities of the CEO
    • 2) Joint and several liability of the CEO
  • The violation of law, the Articles of Association and approved items of the General Assembly by managers
    • A) The violation of law by managers
    • B) The Violation of the Articles of Association

The criminal and civil liability of managers and members of the board of directors is important in promoting the management quality in a company in terms of production, employment and capital markets.

In this article, we have examined the criminal and civil liability of managers and members of the board of directors of companies. Stay with us to the end of the article for more information in this regard.

 

What is the civil and criminal responsibility of directors and board members?

Awareness of civil and criminal responsibility of directors and board members can be useful and effective in promoting and increasing the quality for a better performance for managers and the success of the company, especially in the fields of production, employment and capital markets.

Companies are run by managers who are responsible for protecting the rights of shareholders, capital owners and third parties. These responsibilities sometimes arise from the contract, or may be coercive and legal. These factors will be examined as follow:

 

The responsibility of board members in joint stock companies

According to the Commercial Code Amendment Bill, a joint stock company is managed by a board of directors elected by the general meeting, and the board of directors manages the company according to the current laws and regulations of the country, the Articles of Association of the company and the approved items of the general assembly of shareholders.

Pursuant to Articles 142 and 143 of the Commercial Code Amendment Bill, the members of the board of directors are liable, in person and collectively, to shareholders and third parties for any negligence, as well as the negligence of the other members of the board of directors, which may result in damages to the company. It is necessary to establish transparent and complete regulations to assess the responsibility of managers and determine the limits of their responsibility and their Principles of Responsibility.

The board of directors has the authority to manage the company, including the current affairs of the company, sales or rental/lease agreements, hiring new employees, filing a lawsuit, defending the rights of the company, signing the documents and papers, and the like.

 

What is civil liability?

Legal liability is divided into two types civil and criminal liability. Whenever a person inflicts material or moral damage on another person, he/she is obliged to recompense the damage caused by his/her action, which is called civil liability; according to the rules of civil liability, whoever harms a person must compensate it.

 

The civil liability of directors and board members

Due to the special status of managers and the extensive authority and duties they have in managing the company, and also for the purpose of protecting the rights and interests of third party transactions with the company, the legislator exceeds the general rules for the responsibility of company managers and predicts a broader responsibility for their actions.

Harmful actions or refusal to take the required actions (committing or abandoning), in cases that cause loss or damage to the company, can lead to legal liability for managers.

When discussing the civil and criminal responsibility of company managers, it should be mentioned that the responsibility of managers and CEO is based on error and fault. Therefore, in order for a manager or CEO to be held responsible, he/she must have committed a mistake or fault in the process of performing his/her tasks, and a damage be engendered by the fault- something that is very difficult to detect in practice.

According to the general rules of civil liability, the claimant of the fault is responsible for proving the fault, the mistake of the company manager and the causal relationship between the fault and the damage caused through it. The implementation guarantee of civil liability in law is the obligation to fulfill the tasks and compensating for them. A manager is not immune from liability for the violations done by other members, unless he/she expresses his/her written dissenting opinion or vote at the time of writing the minutes of the meeting and, if necessary, should inform the first general assembly; He/she should even announce it to the judicial authorities, too.

 

Civil liability is of two types

 

1) The usual responsibilities of the CEO

1. Individually
2. Jointly

In this type of liability, a competent court determines the share in damages inflicted and the related compensations for each director and the CEO who committed violations jointly and/ or severally, and each of them is sentenced to pay for a portion of the damage.

Pursuant to Article 142 of the Trade Law Amendment Bill, the directors and the CEO are individually or jointly liable to the company and third parties for violating the legal regulations, the Articles of Association of the company or the approved items of the general assembly, and a competent court determines the responsibility domain for the compensation verdict for each case.

 

2) Joint and several liability of the CEO

In Commercial Law, like the general rules of civil liability, the principle is based on shared responsibility and joint and several liability is an exception and is used only when it is specified by law, or individuals predict it by private agreements. In joint and several liability, each offender is sentenced to pay all damages, and this is the difference between shared responsibility and joint and several liability.

The following item is mentioned specifically in law in this case:

Article 143 of the Commercial Law Amendment Bill

If the company goes bankrupt or it becomes apparent that the assets of the company are not sufficient to pay its debts after the liquidation of the company, a competent court can, at the request of any interested party, determine the bankruptcy of the company or the insufficiency of the assets to be compensated for individually or jointly and severally by each director or CEO. This requires that the bankruptcy or the insufficiency of the assets of the company be, in some way, caused as the result of their violations.

 

 

 

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 The criminal and civil liability of managers and board members of Iranian companies (Part 1)