On The Liability Of The Director To The Third Party

Director is an integral part of company authorities. In traditional theory ofcompany, without independent personality, company authorities’ behavior is regardedas the company’s behavior. So the company is responsible for their behavior. Duringthe early development of the company within the countries under civil law system,shareholders were as the core of power, whose behavior effected the governing ofcompany greatly. As an executive authority, the director managed the company andshould give an account to the shareholders. Supervisory Board supervised theactivities carried out by the director and other executives. Thus, the balance of thepower in the corporation was formed by the separation of power.With the development of the economics, the equity was divided into many parts.Right to operate the company was centralized. Thereby the director becomes morepowerful. The company’s governance structure also changed from the “ShareholdersCentrism” to the “Board Centrism”. Due to the establishment of the Board Centrism,the director becomes the core of power. But the supervision over the directors is notenough, and the balance of power is struck. Under the “Shareholders Centrism”,shareholders were the center of power. At the same time, they paid attention to themanagement of the director, because of shareholders’ interest closely relating to thecompany’s interest. Moreover, the number of shareholders was small by then. So thesupervision comes to reality. However, the equity is divided into more parts thanbefore under the “Board Centrism”, and then the shareholders couldn’t restrict thedirectors’ behavior as they did before. Though the directors’ behavior is stillsupervised by the Supervisor Board, that can no longer prevent the directors fromabusing. As a result, the lack of constrains on the behavior of directors increases thepossibility of damaging shareholders, the third party and other parties of interest. Inorder to prevent the abuse and to protect the interest of the third party, it is the rightchoice to establish the rules of the director’s liability to the third party. As thedevelopment and supplement to the traditional theory of company, the director’sliability to the third party makes directors be responsible for the damage of the third party, who are the deterrence to the directors. At the same time, the interest of thethird party is also being protected. This is the supplement to the traditional theory, andit is needed not only to prevent the abuse but also to balance the interest of the subjectin the corporation law.In the discourse, this paper uses the method of comparative analysis, startingfrom the reason of director being responsible for the third party. And then discuss thenature of liability, the elements of liability, and the final penalty. In our country, theliability of the director to the third party is additional provision, and it is a statutoryliability. When it comes to the identification of the liability, this maintains therequirements for the subject, the requirements for the behavior, the subjectiveelements and the requirements for the result. The requirements for the subject are onthe identification of directors and the third party. The requirements of the behavior areon the definition of the behavior that the directors operate the corporation. Thesubjective elements are mainly on the subject should be deliberate or grosslynegligent. The requirements for the result are the directors’ behavior causing thedamage of the third party. Besides, the director should be responsible for thecreditors’ all loss and the shareholders’ loss which is directly caused by directors. Thecompany and the director are jointly and severally liable for the third party. In theimplementation, firstly, the third party ought to have the right to sue the directorsdirectly. But if the corporation goes bankrupt, the right has to be exercised by theliquidator or administrator. Secondly, on the issue of the allocation of burden of proof,the third party should prove his damages which caused by the director when thedirector does his duty. In addition, the director must prove himself not to be deliberateor grossly negligent.