The business judgment rule in Lithuania

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Abstract

Any involvement in business is associated with the risk which a business decision may bring in terms of both gains and losses. Economic activities have business cycles and fluctuations, so neither a constant and stable profit nor deals that are always beneficial can be guaranteed. If directors were personally responsible for every loss-making decision, this would ruin their initiative and entrepreneurship and limit their discretion in situations requiring prompt and decisive action. However, if directors were not subject to legal liability for damages incurred due to their decisions, this would increase the risk of directors adopting unlawful decisions. Therefore, it is important to find the golden mean between liability and freedom to adopt decisions. This article aims to present the rules applied in the Lithuanian legal system in liability cases against directors in the evaluation of risky business decisions. The research has shown that there is no explicit legal rule in Lithuanian corporate law which provides for a business judgment rule, since the Lithuanian legal system, like most legal systems in other countries with a civil law tradition, does not recognise the judicial abstention doctrine, which emphasises a court’s right not to consider ex post criticism of directors’ decisions. In Lithuania, there is no tradition of litigation proceedings and rules formulated in judicial decisions that allow directors to be aware of the decision-making rules ex ante, so that their decisions cannot be assessed as illegal ex post.
Original languageEnglish
Pages (from-to)555-576
JournalEuropean Business Organization Law Review
Volume17
Issue number4
DOIs
Publication statusPublished - 2016

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Keywords

  • Business judgment rule
  • civil liability
  • company director
  • duty of care
  • directors’ duties
  • risky business decision

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