Running a company inevitably means making decisions under uncertainty. Investments are made that do not always produce the expected return. Businesses enter new markets, extend trade credit to customers, hire staff, take on financing, or abandon projects that, in hindsight, perhaps should have been continued.
The law does not require a director to predict the future, nor does it turn every corporate loss into personal fault. If it did, almost every entrepreneurial decision would become impossible.
But freedom to make business decisions is not unlimited. The Civil Code of the Republic of Moldova places a number of duties on the company’s administrator or director: to act within the limits of their authority, in good faith, in the interests of the legal entity, with due care and competence, to avoid conflicts of interest, and to protect confidential information. In certain circumstances, particularly when the company is in financial distress, the interests of creditors also become relevant.
Some duties are also far more concrete than they may first appear. Accounting, financial reporting and the response to emerging insolvency are areas where a director cannot simply say, “that is the accountant’s job” or “the shareholders decided it.”
So where does ordinary business risk end, and where can a director’s personal liability begin?
A company that loses money does not automatically have a director who breached their duties
One of the most important reference points is Article 187 of the Civil Code.
A director must act with the level of competence and care that can reasonably be expected both from a person with their knowledge and experience and from a prudent administrator. But the same provision also contains an important protection for business decisions: the duty of care is not considered breached where, at the time of the decision, the director was reasonably entitled to believe that they were acting in the interests of the legal entity and had adequate information available.
This changes the perspective.
An investment should not be judged solely by what we know three years later. Expansion into a new market may fail. A major customer may become insolvent. Equipment purchased for a new production line may not generate the projected sales. The fact that the final result was negative does not, by itself, prove that the director acted negligently.
The legally relevant question is instead: what did the director know when the decision was made, and what did they do to inform themselves?
Did they analyse the financial data? Ask for the information they needed? Assess obvious risks? Compare alternatives? Seek specialist advice where the issue went beyond their own expertise? Was there a reasonable basis for believing that the decision served the company’s interests?
This is, in substance, the space the law leaves for business judgment. A director may misjudge the market without necessarily being at fault. What is much harder to justify is an important decision made without adequate information, in disregard of clear warnings, or for an interest unrelated to the company’s own.
What you decided matters — but so does your ability to show how you decided it
This distinction becomes even more important in light of Article 193 of the Civil Code.
If the legal entity seeks compensation for loss caused by a breach of the director’s duties, the Code provides that the director bears the burden of showing that they acted with the competence and care required by law.
In practice, this gives decision-making records a significance that goes well beyond administrative housekeeping.
Minutes of meetings, financial reports reviewed before an investment, legal opinions, competing offers, financial scenarios, internal approvals, or correspondence requesting clarification may all become relevant in showing how a decision was reached.
Not every operational choice needs a legal file behind it. But the greater the financial exposure and risk, the more important it becomes to be able to reconstruct the decision-making process.
The same logic matters where a company has several directors. Article 194 establishes, as a general rule, joint liability where directors jointly breach their duties. A director may, however, avoid liability where they can show, subject to the statutory conditions, that they did not participate in the breach, did not know and were not required to know about it, or that once they became aware of it they took the steps needed to prevent the loss, expressly objected and informed the competent corporate body.
This leads to a simple practical rule: in a collegiate management body, a serious disagreement should not remain merely verbal. Sometimes it matters whether a director’s opposition to a risky transaction can later be proved.
The company’s interest and the director’s personal interest are not the same thing
A director’s freedom to make decisions becomes significantly harder to defend where the decision is influenced by a personal interest.
Articles 188–190 of the Civil Code regulate conflicts of interest and require a director to avoid situations where their direct or indirect personal interest conflicts with the interests of the legal entity. Where such a conflict exists, the director must disclose it to the competent body and, in the circumstances provided by law, refrain from negotiating or participating in the relevant decision.
The rules go further. A director must not use the company’s property, information, name or their position within the company to obtain advantages for themselves or affiliated persons. Nor should they appropriate for themselves business opportunities that, in the circumstances, belong to the company, or compete with the company without the required authorisation.
Suppose a company intends to lease a new warehouse and the director proposes property owned by a company controlled by a member of their family. Such a transaction is not automatically prohibited. But the interest must be disclosed and the applicable approval procedure must be followed.
The problem arises when the conflict is hidden, when the director effectively negotiates both sides of the transaction, or when the company accepts terms it would not ordinarily have accepted from an independent third party.
In other words, a risky business decision may still be legitimate. A decision in which the director puts their own interest ahead of the company’s enters a very different legal territory.
Accounting is not only the accountant’s responsibility
One of the most important — and sometimes most underestimated — duties of directors arises under Accounting and Financial Reporting Law No. 287/2017.
Article 18(1) requires the entity to keep accounting records and prepare financial statements in accordance with the law, applicable accounting standards and other relevant regulations. But Article 18(2) goes further by identifying expressly who bears responsibility for accounting and financial reporting.
For legal entities carrying on entrepreneurial activity, regardless of ownership type or legal form — the entities listed in Article 2(a) — responsibility lies with the head or administrator/director. The same rule applies to permanent establishments and branches of non-resident entities under Article 2(c), and to non-profit organisations and representative offices of non-resident entities under Article 2(d). For the other categories covered by the law, Article 18 assigns responsibility, as applicable, to the head, director, founder or the individual carrying out a professional activity in the justice sector.
This does not mean that the director must personally post every invoice.
The law allows a chief accountant or another responsible person to be appointed and also permits accounting to be outsourced under a contract. Even so, Article 18 leaves responsibility for organising accounting and financial reporting with the persons designated by law. The director must ensure, among other things, that accounting is properly organised, that appropriate documentation and internal processes exist, that economic transactions are documented, that records are preserved and protected, that internal controls are organised, and that financial statements are prepared and submitted.
The distinction is crucial.
The accountant may keep the books, but the director cannot treat accounting as an area that has been completely outsourced from their own responsibility.
If the director is repeatedly informed that documents are missing, that transactions have not been recorded, that the financial statements cannot be prepared correctly or that the accounting records do not reflect reality, and simply ignores the issue, the explanation that an accountant had been hired becomes insufficient.
Moreover, financial statements are signed before submission or publication by the persons to whom Article 18(2) assigns responsibility. Breaches of accounting and financial reporting legislation may, depending on the nature of the breach, give rise to disciplinary, civil, administrative and/or criminal liability under the applicable law.
For a director, accounting is therefore not merely the system used to calculate taxes. It is one of the main systems through which the director can understand the company’s real financial position and demonstrate that business decisions were made on the basis of adequate information.
“The shareholders decided it” is not always a sufficient defence
A director does not act in a vacuum. They must comply with the company’s constitutional documents and the decisions of the corporate bodies to which they are subordinated, within the limits laid down by law. Article 185 of the Civil Code expressly establishes this duty.
But it does not follow that every instruction from a shareholder, owner or superior corporate body automatically releases the director from responsibility.
Article 192 of the Civil Code provides that the director’s statutory duties and liability to the legal entity cannot be excluded or limited in advance by contract. The law allows, in certain circumstances, a particular course of conduct to be approved or ratified by the competent body where that body is adequately informed and conflict-of-interest rules are observed. But such approval cannot be relied on against creditors or third parties who are directly harmed in the circumstances provided by law.
This distinction is particularly important in companies where the director is also effectively employed by the founder, or where a majority shareholder is deeply involved in the day-to-day management of the business.
A shareholder instruction may explain why a particular decision was taken. It does not turn into a lawful transaction something that breaches duties imposed personally on the director by law.
Nor does approval of the financial statements or annual report automatically “close” the issue. The Civil Code expressly provides that approval of those documents does not affect the legal entity’s right to hold the director liable.
When financial problems begin to change the director’s duties
As long as a company is operating normally, the director primarily pursues the interests of the legal entity. But when financial difficulties become serious, protecting creditors becomes especially important.
Article 186(2) of the Civil Code itself provides that, in cases expressly established by law, the director must act to protect the interests of the legal entity’s creditors.
This principle becomes particularly concrete in insolvency.
Insolvency Law No. 149/2012 specifies circumstances in which a debtor is required to file an application for commencement of insolvency proceedings and sets a deadline for complying with that duty. Failure to do so in the circumstances prescribed by law may lead to subsidiary liability for obligations arising after the expiry of the statutory filing period.
In addition, Article 248 of the Insolvency Law allows the insolvency court, on the application of an entitled person and where the statutory requirements are satisfied, to place part of the debtor’s liabilities on members of its management or supervisory bodies or other persons whose conduct contributed to the insolvency through acts identified by law.
It is important not to reverse the rule: a company becoming insolvent does not automatically mean the director is personally liable.
Businesses may fail for reasons that have nothing to do with wrongful management — loss of a market, the failure of a major customer, an economic crisis or other external events. Personal exposure arises where financial difficulty is accompanied by conduct attributable to the director and the specific statutory conditions for liability are met.
For that reason, the point at which a company begins struggling to meet its obligations is not the time to stop monitoring its finances. On the contrary, it is the time when a director should pay even closer attention to cash flow, payment deadlines, assets, new obligations being assumed and whether the statutory grounds for commencing insolvency proceedings may have arisen.
A “shadow” director is not necessarily outside the scope of liability
There is another rule that is especially relevant in companies where the formally registered director is, in reality, acting on another person’s instructions.
Article 197 of the Civil Code regulates the de facto administrator. A person who is not recorded in the public register as a director may nevertheless be treated as a de facto administrator where they habitually give instructions to the registered director and those instructions are followed. The law extends certain directors’ duties to the de facto administrator and may subject that person to corresponding liability.
This matters for founders, shareholders or beneficial owners who assume that they can run the company on a daily basis through a formal director without taking on any legal risk for the instructions they give.
In some circumstances, the role a person actually performs may matter as much as the title shown in the register.
At the same time, the end of a director’s mandate does not erase liability for breaches committed while the person held office. The Civil Code preserves the possibility of liability after the person has ceased to act as director.
The line between commercial risk and personal risk
A good director is not the director of a company that never loses money. Such a standard would be incompatible with the very idea of entrepreneurial activity.
What usually makes the difference is how risk is managed.
A director who identifies the issue, asks for the necessary information, analyses alternatives, discloses conflicts of interest, informs themselves before an important decision, monitors the company’s financial position and can explain the reasoning that existed at the time of the decision is in a very different position from a director who acts without information, ignores warnings, leaves conflicts undisclosed or assumes that all responsibility can be transferred to the accountant, lawyer or founder.
Documentation, of course, does not turn a negligent decision into a diligent one. But a well-founded and properly documented decision can demonstrate something essential: that the loss resulted from a commercial risk reasonably assumed by the company, rather than from a breach of the director’s personal duties.
And that may be the most important point for directors to remember: the law does not require them to guarantee the success of the business. It does require them to be able to show that they managed it in good faith, with competence, due care and respect for the duties attached to the office.
This material is provided for general informational purposes and reflects the law of the Republic of Moldova. The existence and extent of a director’s liability depend on the legal form of the entity, the specific circumstances, its constitutional documents, decisions of its corporate bodies and, where applicable, sector-specific rules.