THE LIABILITY OF BOARD MEMBERS IN A FACTUAL GROUP OF COMPANIES

Abstract

The paper analyses key issues of liability of board members in companies which form a so-called factual group of companies. The liability of board members is a natural consequence of their powers. In order to determine the scope of boards' powers, the paper assesses, first, the notion of a factual group of companies and, second, the relationship between a parent and subsidiary company. It can be concluded that, although it is not allowed, parent company is often in a position to force subsidiary company to undertake certain actions. Therefore, the primary goal of the provisions which limit the influence of a parent company is to protect minority shareholders and creditors of the subsidiary company. Parent company is allowed to give harmful
instruction to its subsidiary only exceptionally, when it compensates the harm to the subsidiary before the end of the business year. Such a privilege of the parent company is balanced by the rules on the objective liability of the parent company and the presumed liability of its statutory representatives. The management board of the subsidiary company has a key role in its effective protection because it is has to evaluate, with a care of a diligent businessperson, if the instructions of the parent company are harmful to the subsidiary and if they are, is the parent company ready and able to compensate the harm.