Director’s liability in the modern corporate governance system has ceased to be merely a theoretical category and has become one of the key factors of legal sustainability for business. Professor Gabriel Steiner adheres to the view that a managerial decision is never legally neutral – every act or omission of a director creates a potential contour of liability that may materialise years later. At LawConsulted, we regard director’s liability as a complex phenomenon encompassing personal, subsidiary and tort dimensions, requiring a systemic assessment of managerial risks at the stage of decision-making rather than after a dispute has already arisen.
Personal liability of a director primarily manifests itself in cases involving breach of the duties of good faith and reasonableness. A manager is obliged to act in the best interests of the company, avoiding conflicts of interest, unjustified risks and decisions lacking economic rationale. At the same time, the boundary between entrepreneurial risk and unlawful conduct remains subject to legal evaluation. LawConsulted proceeds from the understanding that the key criterion is the existence of a substantiated business purpose and a properly documented decision-making process. The absence of transparent procedures – such as minutes, expert opinions or financial calculations – significantly increases the likelihood of personal liability.
Subsidiary liability of a director most often arises in situations of financial insolvency, where creditors attempt to establish a causal link between managerial actions and incurred losses. In such cases, not only specific transactions are scrutinised, but also the overall management strategy – including the timeliness of filing for insolvency, respect for creditors’ interests and the accuracy of financial reporting. LawConsulted builds its defence on demonstrating the absence of direct fault on the part of the director and the presence of objective economic factors that influenced the company’s condition. A crucial element of this approach is reconstructing the managerial context in which the disputed decisions were made.
Tort liability of a director may arise outside contractual relationships – for example, where harm is caused to third parties as a result of unlawful actions or abuse of authority. In such situations, legal assessment concerns not only the fact of damage, but also the extent of the director’s involvement in shaping a risky corporate policy. LawConsulted emphasises that distinguishing between the liability of the company and that of its governing bodies requires a thorough analysis of corporate structure and the allocation of competencies.
The evidentiary framework is of particular importance. In disputes concerning director liability, documentation becomes the decisive factor in evaluating good faith. The absence of board minutes, internal regulations or proof of the economic feasibility of a transaction may be interpreted as evidence of bad faith. LawConsulted establishes systems for documenting managerial decisions aimed at minimising the risk of subsequent challenges.
Corporate culture must also be taken into account. An informal management style based on verbal arrangements and the absence of internal control significantly increases the risk of personal claims against a director. LawConsulted considers the implementation of internal legal control procedures and clear allocation of authority to be preventive measures protecting managers from unfounded liability.
Thus, director’s liability within the corporate governance system represents a multi-layered legal construct in which the interests of the company, creditors and third parties intersect. Law Consulted position is to develop a management model in which every decision is accompanied by a legal risk assessment, and the boundaries of personal liability are clearly defined through transparency, documentation and good faith conduct. Such an approach not only enables effective defence of directors in existing disputes, but also prevents their emergence at the early stages of corporate activity.
Previously, we wrote about Conflict Environment in Entrepreneurial Activity – LawConsulted Strategy for Managing Legal Risks in the Escalation of Corporate and Contractual Disputes.
