TSG Guide: Director’s Liability
DUTIES AND RESPONSIBILITIES OF THE DIRECTOR IN SERBIA
Duty to Act Within the Limitations of Authority
Limitation of the Director’s Authority
A director is obligated to act in accordance with the limitations provided by: (i) the company’s acts or (ii) the decisions of the competent bodies (the general assembly or the supervisory board).
The company cannot assert the director’s limitations against third parties. The exceptions are the limitations in the form of joint representation, or the mandatory co-signature, that can be assert against third parties if they are registered in accordance with the law.
A director is liable for damages caused to the company by exceeding the limitations of his/her/its authority, unless the director acted in accordance with a decision of the competent body, or if the act was subsequently approved by that body.
The director is criminally liable if he/she/it violates the duty to act within the limits of his/her/its authority. The penalties are a monetary fine or imprisonment for up to 1 year, and if the company suffers damages exceeding RSD 10,000,000 (approx. EUR 85,350), the prescribed penalty is imprisonment from 6 months to 5 years and a monetary fine. A ban on holding a position or profession is also possible, in accordance with the Criminal Code.
Director as a Signatory of a Contract on Behalf of Both Parties
The director cannot, without a special authorization, act as the other contracting party and conclude contracts with the company, in his/her/its own name and his/her/its own account, in his/her/its own name and for the account of another person or in the name and for the account of another person. Authorization for such action is granted by the general assembly, unless otherwise specified in the foundation deed.
Special Duties of the Director
A director has special duties towards the company, namely:
Duty of Care (Business Judgement Rule)
The director is obligated to perform his/her/its duties diligently, with the care of a prudent businessman and in the reasonable belief that he/she/it acts in the best interest of the company.
The standard of care of a prudent businessman that a director is required to meet is the standard of the care that a reasonably prudent person, possessing the knowledge, skills and experience that would reasonably be expected for the performance of that duty in the company would exercise. Furthermore, if a person possesses certain specific knowledge, skills or experience, that knowledge, skills and experience will also be taken into account when assessing the standard of care.
The director may also base his/her/its actions on information and opinions of the experts whom the director reasonably believes have acted in good faith in that case.
The company may file a lawsuit against a director for damages caused by a breach of the duty of care in business. If the director proves that he/she/it acted with the care of a prudent businessman, in accordance with the abovementioned rules, the director is not liable for damages that arise for the company from his/her/its business activities. The burden of proof is on the director.
