When Mongolian courts may hold a company director personally liable for their actions under criminal and civil law

In its forthcoming newsletter, CONSULEGIS International Litigation & Arbitration Specialist Group presents a series of short overviews of various jurisdictions legal views on when, based on company law, is a director personally liable for their actions.

Among the contributors on the topic are five legal advisors from Horizons, addressing Indonesia, Mongolia, Korea (DPRK), Russia and China. In this post, we offer the entry on Mongolia.

By Suvd-Erdene Baatar

In Article 47.1 of the Constitution Law of Mongolia, which was adopted 13 January 1992, put into force on 12 February and amended in 1999 and 2000, judicial power shall be vested exclusively in Courts.

The court system in Mongolia consists of the State Supreme Court/Court of supervisory instance, aimag/city court/appellate court, soum or inter-soum and district court/first instance court, all in accordance with Article 10.1 of the Law on Courts. The courts of Mongolia have the right to call a director of the company on the grounds specified in the Criminal Law and Civil Law.

The Courts in Mongolia can call a director personally liable, based on а plaintiff complaint. A Director is often involved in the civil litigation process through an accredited representative under the Civil Law. If shareholders who participated or who have not participated or voted against during the shareholders meeting may appeal to the court on the following grounds related to the Director (his/her decision):

  1. Did not announce the shareholders’ meeting in accordance with the procedures set by this Law and in conformity therewith in accordance with the company charter;
  2. Did not announce the date and place of residence of the shareholders meeting by the shareholders meeting;
  3. Discussed issues not addressed by the agenda.

The guilty of Directors shall reimburse damages incurred to a company, its controlled or subsidiary company due to a conflict-of-interest transaction. A Director of a company concluded with a conflict-of-interest transaction shall be liable in accordance with Civil Law.

If a director of the company violates the Criminal Law, it is possible to call as an accused under a crime. Criminal liability shall be subject to legal entities in the special part of the Criminal Law. The nature of the offence specified in the Special Part of Criminal Law shall be the basis for imposing a sentence on a person who alone or in joint decision making or acts or non-actions for the benefit of a legal person.

If a foreign citizen or stateless person not residing permanently in Mongolia has committed a crime against the interests of Mongolia and has not been sentenced to a criminal offence, the same may be subject to criminal liability under Criminal Law provided by an international treaty to which Mongolia is a party.

If a branch or representative office of a foreign legal person commits a crime in the territory of Mongolia, a criminal liability shall be treated as a legal person set forth in Criminal Law.

The legal person/entity who committed the crime shall impose the following:

  1. Fine of conviction.
  2. The court may apply the following compulsory measures to add to the imposition of a criminal offence if it considers it necessary to satisfy the purposes set out in Article 5.1 of Criminal Law:
    2.1 Coercive measures;
    2.2 Compulsory measures of liquidation;
    2.3 Compulsory measures for confiscation of assets and income of legal entities.

If you would like more information on corporate liability or other related corporate issues, send us an email at talktous@horizons-advisory.com, and we’ll have a Horizons professional contact you.  

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