GEORGIA Law and Practice Contributed by: Tamar Jikia and Archil Giorgadze, Andersen in Georgia
4.7 Responsibility/Accountability of Directors The directors owe their duties to the company. This encompasses acting in the best interests of the company as a whole, which includes consid - ering the interests of its shareholders. In some cases, directors may be required to comply with the instructions of shareholders. However, their primary duty is still owed to the company and, if following the shareholders’ instructions they damage the company’s interests, the directors will be liable for breach of duty. The directors must conduct the company’s business with the diligence of a manager in good faith, acting with the care that an ordinary person of sound mind would exercise under similar circumstances. This duty of care ensures that directors act in the best economic interests of the company. 4.8 Consequences and Enforcement of Breach of Directors’ Duties Breach of director’s duties can be enforced by the company directly or by its shareholders acting derivatively by filing a derivative suit. In particular, one or more shareholders can initi - ate legal action to require directors to compen - sate for damage inflicted on the company. This includes claims for the transfer of any profit earned from transactions conducted on behalf of the directors or third parties. Shareholders are considered eligible claimants if they have requested the company to file a lawsuit and the company has not acted within 90 days, or if wait - ing for this period would cause irreparable harm to the company. If a court rules in favour of the shareholders, the company must reimburse the shareholders for reasonable expenses related to the lawsuit. Directors who breach their duties are liable for any damage incurred by the company. They may be required to compensate for the damage or
transfer any profit earned from transactions con - ducted on behalf of themselves or third parties to the company. The liability for intentional failure to fulfil the duty of good faith cannot be limited by the charter or the shareholders’ decision. In cases of breach of duties, directors can be dismissed from their position immediately by the general meeting or the supervisory board, depending on the company’s structure. 4.9 Other Bases for Claims/Enforcement Against Directors/Officers Other bases for claims or enforcement against directors or officers for breaches of corporate governance requirements may be contractual. Companies usually sign service agreements with their directors and officers. Those agreements will set out the director’s obligations as well as their liabilities. The agreements may also envis - age penalties. The company may rely on the agreement to seek compensation for its breach. The same agreement may limit the director’s liability to a specific sum. Although not com - mon, a director’s liability insurance may also be procured. 4.10 Approvals and Restrictions Concerning Payments to Directors/ Officers No approvals are required in connection with the remuneration, fees or benefits payable to direc - tors and officers. The director’s remuneration is usually set by the general meeting of sharehold - ers. Reporting entities and entities trading on stock markets will likely have adopted a remu - neration policy. They may even have a remu - neration committee in their supervisory board.
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