One of the main rights contained in the legal relationship between the joint-stock company (JSC) and the members of its boards is their right to receive remuneration. This article examines the procedures used to determine it in both the existing systems of management of JSCs, as well as the liability of the members of the boards related to its payment.
One-level management system
Among the members of the Board of Directors (BD) are some, to whom the management of the JSC is assigned and other, to whom it is not. Based on this, there are differences in the way their remuneration is determined.
- Members of the BD, to whom the management of the JSC will not be assigned
According to Art. 221, section 5 of the Bulgarian Commercial Act (CA) the General meeting of the shareholders determines the remuneration of the members of the Board of Directors, to whom the management will not be assigned. The legal relationship with this category of members of the Board of Directors emerges from the decision of the General meeting and their right to receive remuneration arises from that moment on. The conclusion of a separate contract in written form with that category of members of the Board of directors of the JSC is optional. In that case the contract should re-enact the decision of the General meeting in its part related to the remuneration. Therefore, if there is no decision of the General meeting that determines their remuneration, irrespective of the existence of such contract, and remuneration has still been paid, the executive members of the BD, are liable, as the payment of remuneration in this case constitutes a violation of their powers according to the law and with such actions they have caused damages to the JSC.
- Members of the BD, to whom the management of the JSC will be assigned
The General meeting of the shareholders has no competence to determine the remuneration of that category of members of the BD, to whom the management will be assigned. This conclusion is supported by the Commercial Act (CA), according to which the BD selects among its members some, to whom it assigns the management of the JSC (executive members of the BD) and determines their remuneration. The legal relationship between the BD and its executive members is governed by a management agreement.
According to the caselaw, it is obligatory that the BD concludes an agreement with its executive members. The remuneration of the executive members can’t be determined freely by the parties to the agreement as it should only re-enact the decision of the BD that determines the remuneration of its executive members, because the Board has this exclusive right pursuant to the law. Therefore, if there is no decision of the BD that determines the remuneration of its executive members, but remuneration still has been paid, the executive members of the Board are liable, as they have not complied with their management obligations, which include their obligation to rule a decision on the remuneration.
Two-level management system
The members of the Management Board are selected by the Controlling Board, which also determines their remuneration. The legal relationship between the JSC and the members of its Management Board is governed by a management agreement. Irrespective of the fact that this agreement is signed by the President of the Controlling Board or its authorized member, it could not be accepted that the amount of the remuneration of the Executive Director could be freely determined by the parties to the agreement at the time of its signing. The remuneration of the Executive Director of a JSC with a two-level management system is determined by the Controlling Board and it should be re-enacted in the wording of the agreement. Therefore, is there is no such decision of the Controlling Board, but remuneration has still been paid, the members of the Controlling Board are liable for the damages caused to the JSC.
According to the CA, the remuneration of the members of the Controlling Board is determined by the General Meeting of the JSC. The legal relationship between the members of the controlling board and the JSC is governed by a management agreement. Like the agreement with the members of the Management Board, the agreement with the members of the Controlling Board should re-enact the decision of the General Meeting that determines their remuneration. Therefore, if there is no such decision, but remuneration has still been paid, the members of the Controlling Board are liable, insofar as by paying such remuneration, they have violated their powers related to the management of the JSC and with such action they have caused it damages.
In conclusion, in both systems of management of a JSC, in case of payment of remuneration to the members of any of its boards without the necessary decisions required by the CA, the members of the boards are liable for damages caused to the JSC.
