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Damages Claimed from Former Board Members

The October 2019 published an article by PRIMUS DERLING Partner Zane Eglīte-Fogele and Attorney at Law Kristīne Sakārne on Damages Claimed from Former Board Members.

In Latvia, the peculiarity of a board member’s liability regime is that, unlike the general rule that the claimant must prove the merits of his claim, in cases concerning the recovery of losses caused to the company by a board member, his/ her liability is accepted automatically.

The board member has to bear the burden of proving the correctness of his/ her actions.

The board member should be aware that avoiding legal action will not in any way reduce the board member’s liability.

According to the Civil Law, a loss may be a diminution of property or a decrease in anticipated profits. In the view of the Senate, “property” means the body of all cash-valued rights that belong to a particular right-holder and consists of both tangible and intangible assets and liabilities. Assets comprise movables, real estate or right of action, such as a claim for payment of a sum, or performance of a work, or provision of service. According to the Senate, liabilities are a set of obligations, a legal relationship of obligations, in which the person concerned is a debtor.

A property diminution occurs not only when the value of the property decreases, but also when the property is burdened with debts. The conduct of a board member, allowing for an increase in sanctions imposed by the SRS, is not appropriate for an honest and careful manager, and if this imposes additional obligations on the company, which constitute diminution of the company’s assets, the board member is obligated to compensate for such damage.

Read the full text in latvian of the article here.