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Fiduciary duties in Belarusian corporate law

Wednesday 13 October 2021

Yuliya Suschanka

Sorainen, Belarus

yuliya.sushchanka@sorainen.com

It is generally recognised that managers stand in a fiduciary relationship to the company and its shareholders. In some jurisdictions, shareholders in companies owe each other fiduciary duties. These duties are usually broad and open-ended.

Belarusian corporate law does not directly define what fiduciary duties are and whether they are in place in corporate relations, and neither has court practice done this.

However, the law does provide for some duties that can qualify as fiduciary. The law provides that members of a business company’s[1] bodies, while exercising their rights and performing duties, must:

  • act transparently for the benefit of the company, and reasonably (act transparently means to keep the business company’s general meeting of shareholders and board of directors informed as required by law, the articles of association and by-laws and as required for members of the board to perform their powers);
  • to treat all shareholders of the business company equally and fair;
  • not to use/allow the use of the business company’s assets out of accordance with the company’s articles of association, resolutions of the general meeting of shareholders and of the board of directors, and not to do this for their own benefit; and
  • not to shirk their duties provided by the Law on Business Companies and the articles of association.

We believe that a broader list of fiduciary duties can be provided by the articles of association. For example, the duty to manage conflicts of interest or not to make secret profits from corporate business dealings can also be included.

Sometimes shareholders are eager to impose on the managers a fiduciary duty not to compete with the company. There are limited possibilities to do this under Belarusian law. When the law allows this, the respective commitment by a manager must be executed correctly and precisely in accordance with the law to be enforceable.

If the members of the business company’s bodies breach their fiduciary duties, they can be required to pay damages. The claim can be lodged only to the benefit of the company and only by:

  • the company itself;
  • a member of the board of directors authorised to do so by the resolution of the board adopted by at least two-thirds of votes;
  • a shareholder authorised to do so by the resolution of the general meeting of shareholders adopted by at least three-quarters of votes.

A shareholder who owns, for example, 10 per cent of the company’s shares is not entitled to sue in this case per its own initiative. However, this can be changed by a shareholder agreement.

Members of the business company’s bodies who have voted against a decision that implied damages or who have not voted cannot be required to pay damages.

In practice, the right to sue members of the company’s bodies is often exercised by the companies and their shareholders against the directors when they conclude transactions that are not to the benefit of the company. Although there is little relevant court practice available, it seems that the courts, when deciding on these kinds of cases, consider mostly the results of directors’ decisions for companies (ie, whether they are ultimately good or bad for the companies), rather than the process of taking these decisions (ie, whether they were taken reasonably and with due care, etc). Therefore, for a director, it could be beneficial to have an insurance coverage regarding their liability to the company.

The general feature of the fiduciary duties in Belarus is that they are owed only by members of the business company’s bodies. The list of the possible bodies is exhaustive. It includes:

  • the general meeting of shareholders;
  • the board of directors;
  • the executive body (director or collegial executive body); and
  • the inspector or inspecting committee.

Managers that are not members of these bodies (such as a chief technology officer) do not owe the fiduciary duties due to the law and, as such, cannot be claimed upon as described above. There is an option to impose the fiduciary duties on these managers and to include these duties into their employment agreements. However, the liability for any breaches will be based on employment law, and Belarusian employment law is more friendly to employees than employers. In particular, it provides for a possibility to claim damages from the employee, but

  • the possibility is limited to actually incurred damages (loss of profit cannot be claimed);
  • the claim can be lodged only within one year since the damages were discovered; and
  • the damages can be claimed only if they are caused by an employee while performing their job duties.

Belarusian law does not contain a specific definition of job duties. Therefore, it is unclear whether these are the duties which referred to the performance of the specific job or any duties that are provided by the employment agreement. To ensure understanding between the parties, a clear definition of the job duties can be provided in the employment agreement.

The procedure for imposing penalties on an employee is quite strict under Belarusian law. If the procedure is not complied with, the court is likely to dismiss the claim.

Importantly, the law is not specific about the rights of a shareholder to protect itself against breach of fiduciary duties owed to it. In particular, members of the business company’s bodies must treat all shareholders of the company equally and fairly. The law does not provide for any specific rights of a minority shareholder to claim damages in case the members of the company’s bodies act only for the benefit of a majority shareholder.

The legislation contains a general rule that allows for a claim to be made against any damages that are caused to a person or his/her property, or to the property of a legal entity. However, there is no available court practice to verify how it could work with respect to protection of minority shareholders’ rights. This implies that we should deal with this on a case-by-case basis, reasonably building a legal position.

Considering the above, our main recommendations would be to:

  • fully and correctly describe the fiduciary duties of the members of the company’s management bodies in the company’s articles of association and their employment agreements (if any);
  • fully and correctly describe fiduciary duties of other managers in their employment agreements;
  • carefully and precisely comply with the law, while imposing any duties on managers and bringing them to liability for their breach;
  • for directors, obtain insurance coverage regarding their liability with respect to the company; and
  • for minority shareholders, ensure their rights are protected through the articles of association and shareholder agreement.
 

[1] Under Belarusian law, a business company is a type of for-profit company that can be established in the legal forms of limited liability company, additional liability company or joint-stock company.