The Corporate Transactions with Director's Exceeding Authorities and the Doctrine ultra vires

The article suggests an alternative view on understanding and application of the provisions of Russian law regarding nullification of the corporate transactions committed in conflict with representational powers of directors. The purpose of the research is to consider ways to improve legislation and judicial practice on this issue, drawing on foreign doctrine and key judicial cases; to harmonize relevant legal solutions with the Russian legal system. The first part of the article notes that the current wording of Article 174 of the Civil Code of the Russian Federation creates difficulties for challenging of transactions committed in violation of powers or interests of a legal entity, so far as in practice it is often extremely difficult to prove bad faith and negligence of the counterparty, presence of collusion or causing apparent damage to the company. The situation is aggravated by judicial practice and explanations of the Supreme Court of the Russian Federation. In the second part of the article the author shows that common law jurisdictions have developed the doctrine applied with consideration of the objective good faith of the director. Selected Anglo-American cases demonstrate that director's exceeding of the authorities is a special case of breach of fiduciary duty of loyalty. In foreign law, transaction performed by a director in evident breach of this duty may be invalidated. So it is important to understand that foreign doctrine and practice approach the challenge of corporate transactions more functionally and with recognition of the formal structure of fiduciary responsibility. Russian law, on the contrary, distances from clarification of the issue of director's bad faith, attaching more importance to the negligence of the counterparty and rather formal criteria of causing damage to a legal entity. Based on the results of the study, the author concludes that this approach is not sufficiently correspond to the idea of protecting interests of the corporation and its participants and the concept of fiduciary duties, as well as in necessary to borrow some solutions from foreign experience.

challenging of corporate transactions, exceeding of director's authorities, damage to the interests of a legal entity, fiduciary duties, duty of loyalty, principle of good faith, improper purpose doctrine