Many of our clients have expressed concern about the legal liabilities faced by senior management of state owned enterprises ("SOE"). As defined by law, senior management of an SOE generally includes legal representatives, directors, supervisors, and other employees classified as senior management. As these employees have special status and responsibilities, they may in certain circumstances bear criminal, civil, administrative or economic liability for their own acts or those of the SOE.
Criminal liability: SOE senior management may commit criminal offenses under two circumstances: (1) when a criminal law clearly states that the subjects of the offense are SOE directors, managers or staff; and (2) when the subjects of a criminal offense are "government officials," which includes SOE directors, supervisors, and managers and those who bear the responsibilities of organizing, leading, supervising, and managing the enterprise.
Administrative liability: Laws conferring administrative liability are found in administrative regulations and departmental rules and regulations where the content is more complex. For example, The Interim Regulations on Supervision and Management of State-owned Assets of Enterprises, regulate the responsibilities of SOE senior management and provide for administrative punishments when those responsibilities are breached.
Civil liability: Senior management must comply with laws, administrative regulations, and the Articles of Association, and owe duties of loyalty and of diligence to the company. Senior management must not accept bribes or other illegal income and must not embezzle company property. In general, redress for violations of the duties of loyalty and diligence consists of compensation for losses suffered by the company.
Economic liability: Economic liability arises in the context of auditing the SOE legal representative's economic duties during his or her term of office. Article 45 of the Detailed implementing rules of auditing economic responsibilities of Central Enterprises states that "during audits of economic performance, if the enterprise's losses are found to result from economic policy mistakes, or if statements of the enterprise's assets are untrue, or if operation results are false and so on, then liability of responsible persons must be pursued depending on their degree of influence, and financial penalties must be imposed."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
