Directors Liability under Iranian Law
Civil and Criminal Liability of Directors in Stock companies
- A) Civil Liability of Directors
The board of directors of an Iranian company may face civil and criminal liability for their acts and omissions by virtue of their position. This is provided in Article 110 of the Commercial Code:
“Legal entities may be elected as directors of a company. In this case, the legal entity shall hold the same civil responsibilities as a natural person acting as a board member and shall introduce an individual as its permanent representative to discharge the directorship functions. Such representative shall be subject to the same conditions, obligations, civil and penal liabilities of the board members and from the civil standpoint, he shall be held jointly liable in conjunction with the legal entity which assigned him.”
Under the Commercial Code the managing director of a company is regarded as the representative of that company and therefore shall have responsibility. In this respect, Article 125 of the Commercial Code expresses:
“Managing director of the company within the scope of authorities entrusted to him by the board of directors shall be regarded as the company’s representative.”
The directors of the company are also responsible either individually or jointly, as the case may be, vis-à-vis the company and third parties in respect to any infringement of legal resolutions and provisions stipulated in Articles of Association (AoA) or the minutes of general meeting. Article 142 of the Commercial Code provides:
“Directors and the managing director of the company shall be jointly and severally liable vis-à-vis the company and the third parties with respect to violation of the legal provisions or the company’s articles of association or approvals of the general meetings; the court shall determine the quantum of liability of each director to remedy damages.”
If directors are involved in unlawful actions and therefore a court nullifies such misconducts, they will be responsible toward third parties and other shareholders for all damages caused. Moreover, where the company becomes bankrupt due to violations and illegal acts of directors they will be responsible to cover liabilities of the company jointly or severally as the case may be.
If a check, bill of exchange or promissory note is issued by director(s) on behalf of the company, the director(s) who has signed the check, bill of exchange or promissory note may be liable (jointly and severally with the company) for payment of the check and possible delayed payment damages.
- B) Criminal Liability of Directors
Generally, criminal liability is triggered against natural persons who are acting as director of the company if the company is involved in a criminal activity. In all cases where the company is involved in a criminal activity, directors who have decided on behalf of the company may be held liable. Article 143 of the Iranian Criminal Procedure Code, 2014 further specifies in this respect that:
“In criminal liability, the natural person shall hold the principal liability and the legal person shall bear criminal liability [only] in the event that its legal representative has committed a crime in the name or benefit of the legal person. The criminal liability of the legal persons shall not prevent liability of the natural persons [who] have committed the crime.”
Further, in some cases of non-payment of a company’s check, director(s) who has signed a check on behalf of the company will be criminally liable unless they can prove that non-payment is caused by company or its successive directors, in this case the director who has caused non-payment will be liable.
Submitted by Dr. Mahnaz Mehrinfar & Dr. Shahin Fadakar