ARMENIA Law and Practice Contributed by: Hayk Hovhannisyan and Suren Sloyan, HAP
Duty to Prevent Insolvency and Mismanagement
actions that could make the financial position of the company worse; • employees: while not a primary duty, Armeni - an employment laws may impose obligations regarding fair treatment and compliance with labour regulations; and • government and regulatory compliance: directors must ensure that the company com - plies with tax laws, environmental regulations and other legal requirements. While the primary duty is to the company and its shareholders, directors must also be mindful of obligations that indirectly benefit other stake - holders, especially in cases involving insolvency or legal compliance. 4.8 Consequences and Enforcement of Breach of Directors’ Duties If a director breaches their duties in Armenia, several parties may have the right to seek a rem - edy for the breach, depending on the circum - stances. The Company (via Shareholders or the Board) The company itself, usually through its BoDs or shareholders, can bring a claim against a direc - tor for breaching their duties. In some cases, shareholders may initiate a derivative action on behalf of the company if the board fails to act. Creditors (in Insolvency Cases) If the company is insolvent or nearing insolven - cy, creditors may have a claim if directors acted recklessly, fraudulently or engaged in wrongful trading. The insolvency administrator (appointed by the court) may also take action to recover damages from directors.
If a company is approaching financial difficul - ties, directors and officers must take reasonable steps to prevent insolvency and must not act in a way that makes the financial situation worse. Duty to Maintain Corporate Records and Transparency Directors and officers must ensure that: • proper accounting and financial records are maintained; • the company provides accurate financial reports to the relevant authorities; and • shareholders have access to essential corpo - rate information. Liability for Breach of Duties Failure to comply with these duties can lead to: • personal liability for damages caused to the company; • civil and administrative penalties; and • criminal liability in cases of fraud, misman - agement or financial misconduct. 4.7 Responsibility/Accountability of Directors Directors primarily owe duties to the company itself. They must act in the best interests of the company, ensuring its success and protecting its assets. This typically means acting in the best interests of shareholders. However, the law also recognises the need for directors to consider the interests of other stake - holders in certain situations. Specifically: • creditors: when a company is approach - ing insolvency, directors may have a duty to consider the interests of creditors to prevent
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