Liability of the CEO of a company in Uzbekistan

1) Can a CEO of a private company be personally liable for the acts/omission and / or obligations of the company?

Under the legislation of Uzbekistan, the general rule is that a director (CEO) is not liable with his or her personal assets for the company’s debts and obligations to creditors. Pursuant to Article 48 of the Civil Code of Uzbekistan, a company is an independent legal entity and bears liability for its obligations solely with its own property.

However, the director bears full material liability toward the company itself and its founders (participants) for losses caused by his or her fault-based actions or omissions. If the director has acted in bad faith or unreasonably (for example, by entering into a knowingly disadvantageous transaction, diverting assets, or violating the charter), the founders are entitled to recover the amount of damages from the director through court proceedings.

Furthermore, if the company’s insolvency (bankruptcy) has been caused by the director’s unlawful actions, a court may impose subsidiary liability on the director for the company’s debts, to the extent that the company’s assets are insufficient to satisfy creditors’ claims (Article 70 of the Law “On Insolvency”).

2) In which cases may a CEO incur civil liability in connection with performance or a failure to perform his duties?

A director may be held civilly liable in cases where his or her fault-based actions or omissions have caused losses to the company or its creditors. Such cases include the conclusion of knowingly disadvantageous transactions, violation of the approval procedure for major transactions and related-party transactions, as well as the unjustified payment of fines and penalties due to the director’s fault (Article 488 of the Labor Code of Uzbekistan).

Moreover, the director bears full material liability for direct actual damage caused to the company.

3) What violations may trigger administrative liability of a CEO as a company official?

A director, as an executive official of the company, bears personal administrative liability for violations committed in the course of managing the company’s day-to-day operations. Fines are most commonly imposed for non-compliance with labor legislation (such as delays in salary payments, violations of occupational safety requirements, or unlawful dismissal — Article 49 of the Code of Administrative Responsibility of Uzbekistan), as well as for violations in the financial and tax sphere (including late submission of reports, breaches of cash discipline, or concealment of revenue — Article 175 of the Code of Administrative Responsibility of Uzbekistan).

4) Under what circumstances may a CEO face criminal liability?

Criminal liability arises where the CEO’s actions have caused major or especially major damage to the state, the company, or individuals. Most commonly, this concerns economic crimes, including:

• Tax evasion (Article 184 of the Criminal Code of Uzbekistan).
• Embezzlement and misappropriation (Article 167): unlawful appropriation of the company’s assets.
• Abuse of authority (Article 192-11): use of the company’s resources for personal purposes contrary to the company’s interests.
• Fraud (Article 168).

In addition, repeated commission of similar administrative offenses within one year may serve as grounds for initiating criminal proceedings under the principle of administrative prejudice.

5) Can a CEO be held liable for the actions of subordinates, in particular, if he delegates a part of his authorities?

Yes. The CEO bears personal responsibility for organizing the company’s operations. Delegation of authority (by way of a power of attorney or a job description) transfers operational responsibility to the subordinate, but does not relieve the director of the duty of supervision and control.

6) Does the business judgment rule apply to a CEO?

Under the legislation of Uzbekistan, the Business Judgment Rule (i.e., the protection of a director from liability for erroneous business decisions made in good faith) is not expressly codified as a statutory doctrine.

However, the legislation provides that, when determining the grounds and the extent of liability, courts must take into account business customs and other circumstances relevant to the case.

Moreover, pursuant to the Civil Code of Uzbekistan, a company’s insolvency is deemed to have been caused by the director only if he or she exercised the relevant authority for the purpose of causing the company to take action while knowingly understanding that such action would result in insolvency.

7) Can a CEO be held liable for his actions or omission after termination of their office?

Yes. Termination of the employment contract does not release a director from liability for acts committed during the period of employment.

8) Can a CEO’s liability be limited by an employment contract, articles of association or internal corporate documents?

As a general rule, a complete limitation of a director’s liability on the basis of an employment contract, the company’s charter, or its internal documents is not permitted.

9) Is a CEO liable for failure to comply with the tax, accounting and other reporting requirements?

Yes, the director is responsible for the accuracy and timely submission of tax, financial, and statistical reporting. Pursuant to Article 175 of the Code of Administrative Responsibility of Uzbekistan, violation of the established procedures for maintaining accounting records and reporting of taxable items, as well as breaches of payment discipline, may result in the imposition of an administrative penalty in the form of a fine.

10) What practical steps can a CEO take to mitigate the risks of his criminal, administrative and civil liability?

To minimize risks, a director should avoid making unilateral decisions on major financial matters and high-risk transactions. An effective protective strategy is collegial approval, i.e., having such transactions approved by the General Meeting of Participants or the Supervisory Board.

To reduce exposure to administrative and criminal liability, proper delegation of authority is essential. Responsibility for compliance with specific regulatory requirements (such as occupational safety, fire safety, tax accounting, and environmental standards) should be formally assigned to competent specialists or deputies through internal orders and job descriptions.

An additional safeguard is the conduct of regular independent audits, which help identify and rectify reporting errors before inspections by state authorities take place.

Author: Javokhir Urinov