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Managers’ responsibilities in the context of events in Ukraine

Currently, the international sanctions and their implementation is a particularly topical and sensitive issue, which also lies on the shoulders of the managers of undertakings operating in Lithuania. Correspondingly, managers (directors, board members, etc.) who, in accordance with the corporate governance structure, are responsible for the conclusion and control of the relevant transactions may be held liable for the improper compliance with international sanctions, whether intentionally or negligently.

In accordance with the legal regulation in force in Lithuania, transactions that were concluded prior to establishing the implementation of international sanctions in the Republic of Lithuania must be immediately terminated unilaterally or by agreement of the parties, or their execution must be suspended for the period the international sanctions are in effect. It is also prohibited to conclude transactions the execution of which would be contrary to international sanctions implemented in the Republic of Lithuania. Such transactions concluded after the establishment of the implementation of international sanctions in the Republic of Lithuania are null and void. Since managers of undertakings are directly responsible for concluding transactions on behalf of the undertaking as well as for executive matters, it is the managers who are the key actors whose decisions or actions may be violating the specified requirements. And if this results in negative consequences for the undertaking under their management (the funds in the accounts are frozen by credit institutions; the transactions, concluded between the undertaking and the sanctioned entity, which have already been executed by the undertaking, are terminated; criminal prosecution of the undertaking is initiated; the undertaking’s reputation is harmed, etc.), the losses of the undertaking may be calculated and the undertaking shall, of course, be entitled to seek their compensation in civil proceedings.

It is also important that Lithuanian undertakings and managers, acting on behalf of the undertakings, are obliged to comply with international sanctions applicable in Lithuania even if they actually operate (perform actions) in foreign countries where similar sanctions are not recognised. Therefore, for example, the performance of a contract concluded with a sanctioned entity in a sanctioned country (not in Lithuania) does not relieve an undertaking of the obligation to comply with the sanctions regime applicable in Lithuania, and does not relieve the undertaking’s managers of the obligation to compensate the undertaking for losses should the actions of the managers cause negative consequences to the undertaking.

The question whether, in the absence of deliberate (intentional) actions by the manager to violate international sanctions, the manager may be held liable against the undertaking for any negligence of the manager, or for gross negligence only (manifesting in obvious and unjustifiable negligence in the performance of his duties) is yet to be definitely answered in the case-law. On the one hand, it has been clarified in the case-law that a manager is liable for a breach of obligations expressly provided for by law even if there is no obvious negligence on the part of the manager.

On the other hand, there are implications in the case-law that the statutory duties, if they are directed to the undertaking does not directly constitute the duties of the managers themselves. Moreover, it cannot be overlooked that situations may arise in practice in which it may be particularly difficult for managers to establish that one or the other entity is subject to sanctions, and therefore the application of liability to managers for ordinary (not gross) negligence may be disproportionate. There is hope that the managers of undertakings operating in Lithuania will make the maximum possible efforts to comply with the applicable sanctions regime, and in the event of mishaps on the part of managers, the courts will be able to find a middle ground to make only the actual offenders face penalties in civil proceedings. All the more so since, depending on the situation, managers may be subject to both criminal and administrative liability for the violation of sanctions.