I. About This Article
Director’s liability to the company is one of the most important issues in corporate law. A director is not merely a signatory or a person managing the company’s daily operations. A director is a member of the management body who owes the company special duties of trust, good faith and due care.
In practice, the issue of director’s liability to the company becomes particularly relevant when a director manages company finances, makes decisions for personal benefit or for the benefit of a third party, fails to comply with the rules set out in the service agreement or acts without shareholder approval.
In this blog, we discuss an important decision of the Supreme Court of Georgia, where a director withdrew money from the company’s bank account to cover his alleged salary arrears. The court assessed which part of the amount was lawfully received and which part gave rise to the director’s liability to the company.
This article will help you understand the legal nature of the relationship between a director and a company, why this is not an ordinary employment relationship, what happens when a director unilaterally uses company funds and how a company can protect itself from similar risks.
II. Real Case: The Director Withdrew GEL 20,640 from the Company Account
Imagine that you have been the director of a company for two years. Your monthly remuneration was GEL 1,000. Later, you believe that the company owes you salary arrears. You take the company’s bank card and withdraw GEL 20,640 from the company account to cover your alleged unpaid remuneration.
After that, you move to another job, and your former company files a claim against you, demanding repayment of the amount on the basis that the money did not belong to you.
These were the factual circumstances assessed by the Supreme Court of Georgia in case No. AS-1398-2024, decision of 23 June 2025.
The main question before the court was whether the director had the right to unilaterally withdraw money from the company’s bank account, even if he believed that the company owed him remuneration.
III. The Relationship Between a Director and a Company Is Not an Ordinary Employment Relationship
First, the Supreme Court focused on the legal nature of the relationship between a director and a company.
According to the court, the relationship between a company director and the enterprise is not an ordinary employment-law relationship. This relationship is regulated not only by labour legislation, but also by the Law of Georgia on Entrepreneurs, the company charter, the act appointing the director and the director’s service agreement.
The act appointing the director makes the director a corporate organ and legal representative of the company. This means that the director is granted broad powers in relation to company management and representation before third parties.
The court also noted that a service agreement concluded with a director is, by its content, closer to a mandate agreement, and the rules of the Civil Code on mandate agreements may apply to it.
This approach is important from a practical perspective as well. A director is not merely an employee. A director is a person entrusted by shareholders with management of the company, disposal of company property, financial decisions and acting on behalf of the company.
For more information about the legal nature, functions and representative authority of a company director, see our blog: Company Director – What You Should Know About the Powers of the Management Body, Fiduciary Duties and Representation Risks.
IV. Why Can a Director Be Removed Without Stating a Reason?
According to the Supreme Court, granting broad authority to a director to manage an enterprise itself creates risks for shareholders. To balance this risk, shareholders must have the ability to remove the director from office without indicating a ground, motive or reason.
This does not mean that a director has no rights. However, the director’s status differs from that of an ordinary employee. A director is a member of the company’s management body, and appointment or removal of a director is connected with the logic of corporate governance.
Therefore, in relations with a director, it is especially important for the company to have a properly drafted charter and service agreement. These documents should define the director’s remuneration, authority, access to financial resources, accountability, decision-making rules and legal consequences of removal from office.
V. What Did the Court Establish Regarding the Withdrawal of Money?
The case established that the director withdrew GEL 20,640 from the company’s bank account.
The court assessed whether the director had the right to receive remuneration from the company. Based on the available evidence, including agreements and communication between the parties, the court found that the company did indeed have certain salary arrears toward the director.
Therefore, part of the withdrawn amount was considered remuneration due to the director and was assessed as lawfully received.
However, according to the court, the amount withdrawn by the director exceeded the remuneration actually due to him by GEL 9,000. This GEL 9,000 was considered money received without legal basis.
As a result, the director was ordered to return this amount to the company.
VI. Condiction by Interference and Unjust Enrichment
The court assessed the director’s withdrawal of funds from the company account in excess of the amount due to him as unjust enrichment, specifically as condiction by interference.
Condiction by interference applies when a person interferes with another person’s property interest without legal basis and receives a benefit as a result.
The court’s logic in this case was as follows: the director may have had a certain salary claim against the company, but he did not have the right to unilaterally determine the amount of that claim and, by his own decision, withdraw from the company’s account more money than he was actually entitled to receive.
A director, as a person with access to company accounts, is not entitled to decide independently what amount the company allegedly owes him and to take that amount from company finances on his own initiative, unless there is a proper legal basis, shareholder approval or a documented procedure confirming the entitlement.
VII. What Does Director’s Liability to the Company Mean?
Director’s liability to the company means that the director must manage the company’s affairs in good faith, reasonably and in the interests of the company.
The high status of a director does not mean that the director may use company property for personal needs. On the contrary, the director’s broad authority creates a higher level of responsibility.
A director must protect the interests of the company, must not use the position for personal benefit, must not dispose of company finances without legal basis and must not act in a way that causes property damage to the company.
In this context, director’s liability to the company is directly connected with fiduciary duties. A director must act as a diligent manager who treats company property not as personal resources, but as the property of the legal entity whose interests the director is obliged to protect.
VIII. Main Legal Lessons for Directors and Shareholders
The Supreme Court’s decision sends an important practical message both to directors and company shareholders.
The first lesson is that the director’s remuneration, premium, bonus and other benefits should be clearly defined in the service agreement. Oral arrangements or incomplete electronic correspondence may later become the subject of a dispute.
The second lesson concerns the director’s financial authority. The company should define, through the charter, shareholder decision or service agreement, when the director may dispose of company funds, what limits apply and when shareholder approval is required.
The third lesson is the necessity of documentary basis. Even where the company actually owes money to the director, the director must follow the established procedure. The director should not act unilaterally and should not use access to company accounts to satisfy a personal claim.
The fourth lesson concerns shareholders. If the company does not have a properly structured charter, service agreement, financial control procedures and accountability mechanisms for the director, the risk of similar disputes increases significantly.
IX. How Can a Company Protect Itself from Similar Risks?
To avoid risks related to director’s liability to the company, the company should work in several directions.
First, it is necessary to conclude a written service agreement with the director. This agreement should define remuneration, bonuses, premiums, reimbursement of expenses, scope of authority, accountability and consequences of termination.
Second, the charter or shareholder decision should define the limits of the director’s financial authority. For example, what amount the director may dispose of independently and when prior shareholder approval is required.
Third, the company should maintain proper documentary order: the basis for salary, bonus, loan, advance payment, expense reimbursement or any other financial operation should be clear and verifiable.
Fourth, the company should periodically review its corporate documentation, especially when the director changes, the shareholder structure changes, the remuneration model changes or the financial control system is updated.
For more information about legal organization of a company, see our blog: Legal Structuring of a Company – Why It Is a Guarantee of Business Survival.
For legal support in preparing corporate documentation, see our service page: Corporate Law Services in Georgia.
X. How TB Legal Can Help
TB Legal helps companies prevent risks related to director’s liability to the company , prepare charters and service agreements, define director authority, draft shareholder decisions and organize the company’s internal corporate documentation.
Our approach is based not only on formal preparation of documents, but also on assessment of the company’s actual management model, shareholder relations, financial control, director authority and potential dispute risks.
If you want your company’s director authority, remuneration and liability to be clearly defined, it is important to organize the charter, service agreement and internal corporate documentation in advance.
XI. Conclusion
Director’s liability to the company becomes particularly relevant in practice when a director uses the authority granted to him to satisfy a personal claim or disposes of company finances without a proper legal basis.
The decision of the Supreme Court of Georgia discussed in this article shows that a director cannot unilaterally determine the amount of his own claim and withdraw money from the company account without the consent of shareholders or another authorized body.
The high status of a director does not mean freedom over company property. It means a higher level of responsibility to the company. For this reason, director remuneration, authority, accountability and Director’s liability to the company should be regulated in advance by the charter and service agreement.
Contact TB Legal if you want to avoid disputes related to director authority and company financial risks. We will help you legally organize your company’s corporate documentation.
XII. Sources Used
This article is based on the following sources:
- Supreme Court of Georgia, case No. AS-1398-2024, 23 June 2025.
- Law of Georgia on Entrepreneurs.
- Provisions of the Civil Code of Georgia regulating mandate and unjust enrichment.
- TB Legal’s practical experience in corporate law and Director’s liability to the company matters.
Disclaimer
This article has been prepared for general informational purposes only and does not constitute individual legal advice or a legal opinion. Issues related to Director’s liability to the company may be assessed differently depending on the specific company charter, service agreement, shareholder decisions, financial documentation and factual circumstances of the case.
Before making a decision in a specific matter, it is recommended to obtain individual legal advice from a qualified lawyer.
