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Release of a board member from liability – NOVIUS
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28.02.2017

Release of a board member from liability

The matter regarding release of a board member from liability has many aspects not directly regulated by the law. For example, whether statutes (or an agreement with the board member) can provide for regulations which “mitigate” provisions of Section 169 of the Commercial Law regarding liability of a board member? How liability of a board member is affected by the distribution of competencies or compliance with criteria of the so-called business judgment rule? Does the liability immunity originate from a decision of the shareholders (stock holders) meeting which is not economically beneficial to the company? Is the decision of the shareholders (stock holders) meeting to release a board member from liability binding in cases where insolvency proceedings of the company are proclaimed?

In the article, sworn advocate Evija Novicane, a partner of law office NOVIUS, details the statutory tools for releasing a board member from liability for losses inflicted upon the company (Section 169(4) and Section 173 of the Commercial Law) as well as instruments which are not directly regulated by the law but are generally accepted in the doctrine of the commercial law (distribution of competencies, business judgment rule). The article especially addresses preconditions for applying these tools as well as analyses limitations and gives further insight into the debatable questions, including a question regarding “mitigation” of liability of a board member in the company’s internal legislation.

Read more: Novicane E. Release of a board member from liability. Published in “Jurista Vārds”, 21 February 2017, No. 8 (962), pp 18-26, continuation on 28 February 2017, No. 9 (963), pp 25-32. Available: http://www.juristavards.lv/doc/270207-valdes-locekla-atbrivosana-no-atbildibas/ and http://www.juristavards.lv/doc/270163-valdes-locekla-atbrivosana-no-atbildibas/

 

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