Director’s Liability to the Company is a crucial topic that fundamentally dictates the legal relationship between management and the enterprise.

Imagine you were the director of a company for two years in Georgia, and your salary was a mere 1,000 GEL. One day, you took the company card and withdrew 20,640 GEL from the company account to cover your accrued salary debt. Later, you moved to another job, and now your former company is suing you, claiming that the 20,640 GEL did not belong to you and demanding its return. This is a real case decided by the Supreme Court of Georgia, establishing a significant legal precedent regarding Director’s Liability to the Company.

The clear explanations provided by the Supreme Court of Georgia in Case No. AS-1398-2024 (June 23, 2025) allow for an accurate determination of the legal consequences that arise when a company director, even to cover an accrued debt, unilaterally disposes of the company’s finances.

1. Relationship Between Director and Company

First and foremost, the Supreme Court emphasized the specificity of the relationship between the enterprise and the director. Specifically, this relationship, which directly impacts Director’s Liability to the Company, is regulated not only by the Law on Entrepreneurs and the company’s Charter but, crucially, by the Service Agreement (Mandate Contract) concluded between the company and the director.

The Court clarified that this relationship, in substance, does not constitute a regular labor relationship, and the requirements stipulated by the Labor Code do not apply to it. Conversely, the Court regards it as a Mandate Agreement and applies the relevant norms of the Civil Code, not the Labor Code.

The act of appointment makes the director an organ of the enterprise and its legal representative, granting the director broad authority. Consequently, the relationship between the enterprise and the director is not merely a typical employment relationship. This distinction is critical for assessing Director’s Liability to the Company. The relationship is based on two legal documents: the act of appointment and the Service Agreement. The appointment turns the director into an organ and legal representative of the LLC. To compensate for the inherent risk involved in granting the director the right to manage the enterprise, the Court explained that the partners must always have the ability to dismiss the director from office without stating any specific grounds reinforcing the principle of director accountability and Director’s Liability to the Company.

2. Factual Circumstances

1. Amount Withdrawn by the director: 20,640 GEL.
2. Amount Deemed as Accrued Salary: The Court was guided by the available evidence (including informal agreements) and established that the company indeed had certain salary arrears towards the director based on the Service Agreement. Therefore, a certain portion of the total 20,640 GEL withdrawn was qualified as a rightfully received salary.
3. Amount Deemed as Unjustly Received: However, according to the Court’s assessment, the withdrawn amount exceeded the remuneration by 9,000 GEL. It was precisely this 9,000 GEL that the Supreme Court deemed to have been received without a legal basis, triggering Director’s Liability to the Company. Thus, the director was ordered to return this amount under the norms regulating unjust enrichment.

3. Unjust Enrichment

In accordance with the Civil Code of Georgia, the withdrawal of funds by the director more than the accrued salary constitutes unjust enrichment.

The Court clarified that when a director disposes of funds from the company’s account that they were not authorized to receive at that moment (because the amount exceeded their accrued debt), they are dispossessing (hand-grabbing) the company’s proprietary interest.

Consequently, the director, despite being a person with access to the company’s finances, does not have the right to unilaterally and independently determine the amount of their own debt and use the company’s money to compensate for it without the consent of the founders (partners) or another authorized organ.

4. Key Lessons

The Supreme Court’s decision emphasizes that the director, despite their high status, is not authorized to use the company’s property for their personal needs without a legal basis. Director’s Liability to the Company implies strictly adhering to fiduciary obligations and always prioritizing the company’s interests above their own.

every entrepreneur and director must consider that Director’s Liability to the Company is directly related to the formulation of the Service Agreement and the Charter. Specifically:

• Remuneration and Bonuses: The director’s remuneration, bonuses, incentives, the rules for their disbursement, and the amount must be formally documented in writing within the Service Agreement, and the corresponding authority defined in the Charter.
• Definition of Powers: The director’s powers regarding the disposal of company finances must be clearly defined. It must be specified whether the director has the right to unilaterally withdraw any amount from the company’s account, including for debt repayment. If this right is restricted by the partners’ consent, these restrictions must be reflected in the Charter and the Agreement.
• Documentary Basis: Even in the presence of salary arrears, the director is obliged to follow the procedures established within the company for receiving the funds and must not act unilaterally.

5. Secure Your Business

Claims of unjust enrichment and disputes over Director’s Liability to the Company are clear indicators of inadequate legal documentation. A timely and properly structured Service Agreement and Charter are the best guarantees for securing your business’s safety.

6. specialized legal services

• Corporate Founding and Documentation: Precise definition of director authority in the Charter and Service Agreements to prevent unilateral actions.
• Risk Audit & Contractual Revision: A comprehensive review of your existing contracts and financial management procedures for robust litigation prevention.

Don’t wait for a dispute to arise. Contact us today for a confidential consultation on securing your corporate structure.