Director and Founder Liability: When Your Personal Assets Are at Risk

What Is Subsidiary Liability — and Why It Matters

Subsidiary liability — known in many jurisdictions as "piercing the corporate veil" — means that a director or founder becomes personally responsible for a company's obligations using their own assets: real estate, vehicles, bank accounts. The limited-liability shield that a legal entity normally provides ceases to protect once a court establishes that a controlling person was at fault for driving the company into insolvency or committed other qualifying violations.

In our practice advising foreign and domestic investors in Uzbekistan, subsidiary liability consistently ranks among the most underestimated risks for business owners. Many learn about potential personal claims only when an enforcement order has already been presented directly to them.

Key takeaways:

• Personal liability arises when company assets are insufficient and the controlling person's fault is established.
• Both the director and the beneficial owners who actually ran the business are exposed.
• Risk spikes sharply in bankruptcy proceedings, tax arrears cases, and transactions that are manifestly detrimental to creditors.
• Sound corporate governance is the primary preventive measure — retrofitting protections after the fact is far more difficult.

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Who Can Be Held Liable

Uzbek law extends subsidiary liability primarily to persons who control the debtor — those who effectively determined the company's actions. This category includes:

• The director (executive head) — whether formally appointed or acting in that capacity without official registration.
• Founders and shareholders — if it is proven that they issued mandatory instructions that caused harm.
• Beneficial owners — individuals who actually ran the business but may not appear in official corporate documents.
• Members of a supervisory board or board of directors — where decisions adopted by them caused damage.

Founder exposure is particularly acute when the line between "company decisions" and personal directives is blurred and corporate governance procedures were routinely bypassed.

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Grounds for Personal Liability

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How a Claim Arises and Is Enforced

A personal claim against a director or founder typically moves through several stages.

• Establishing the company's asset deficiency. A creditor or competent authority confirms that recovery from the company itself is impossible or insufficient.
• Identifying controlling persons. A court or investigative body determines who effectively managed the company.
• Proving fault and causation. In certain circumstances the burden of proof shifts to the director, who must demonstrate that their decisions were made in good faith and on an informed basis.
• Court order and enforcement. The judgment is executed against the personal assets of the individuals held liable.

Director liability can attach even after resignation if the violations occurred during their tenure.

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Practical Checklist: Reducing Personal Exposure

• [ ] Keep minutes of all material corporate decisions and retain them for no less than the legally prescribed period.
• [ ] Follow the approval procedure for major transactions and related-party transactions.
• [ ] Do not delay filing for bankruptcy when statutory insolvency indicators appear — seek legal advice immediately.
• [ ] Avoid transactions with related parties at non-market prices.
• [ ] Keep personal finances strictly separate from company funds.
• [ ] Document in writing any instructions issued by founders when the director is acting on their direct orders.
• [ ] Conduct an annual legal audit of key contracts and corporate documents.

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FAQ

Can a founder who is not the director be held personally liable?

Yes. If a founder in practice issued binding instructions to management or otherwise controlled the company's operations, a court may recognise them as a controlling person and impose personal liability accordingly.

Does selling one's share in the company protect against subsidiary liability?

No — not if the violations occurred during the period of ownership. Exiting the company after debts or breaches have arisen does not extinguish liability for acts already committed.

Is there a limitation period for filing claims?

Yes, statutes of limitation apply, but their calculation varies depending on the legal basis of the claim. Specific deadlines should be verified as of the date the claim is filed.

What should a director do upon receiving a subsidiary liability claim?

Consult a lawyer immediately. Deadlines for filing objections are tight, and the evidentiary record must be assembled as quickly as possible. Inaction is the worst possible strategy.

Can directors insure against subsidiary liability?

Directors and Officers (D&O) insurance exists, but coverage carries significant limitations and does not extend to wilful misconduct. Insurance complements sound governance — it does not replace it.

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*This article is for general informational purposes only and does not constitute individual legal advice. Applicable rules, deadlines, and procedures should be verified as of the date of any specific inquiry, taking the particular circumstances of your matter into account.*

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If you would like to assess your personal exposure before it materialises, book a consultation with the Pactum team. We help structure protection proactively.