Company Directors And Criminal Liability For Breach Of Trust: When Does A Business Decision Become A Criminal Offence?

Summary

In this article, we examine the offence of breach of trust under Article 390 of the Greek Criminal Code, which may be committed by managing directors, members of the Board of Directors, or any other executive entrusted with the management of a company’s assets.

In this context, we analyse the conditions under which criminal liability may arise for such persons, as well as the limits within which permissible business freedom and corporate decision-making operate. The analysis draws on examples from Greek case law, with particular emphasis on the business judgment rule and the principle of in dubio pro reo as safeguards for accused company directors and officers.

Introduction

When considering the risks faced by a company, one usually thinks of external threats, such as unfair competition, fraud by third parties, financial crises, and so on. There is, however, a category of risks that causes damage to corporate assets and originates “from within”, namely from the very persons entrusted with the company’s administration and management. Greek law addresses this precise situation through the offence of breach of trust, which is provided for in Article 390 of the Greek Criminal Code. However, it is not always easy to distinguish when this offence has in fact been committed and when it has not, since the line between a “bad” but permissible business decision and conduct that is “criminally relevant” is not always clear.

What Is “Breach of Trust” and Who Can Commit It?

According to Article 390 of the Greek Criminal Code, breach of trust is committed by a person who, in breach of the rules of diligent management, knowingly causes certain damage to the property of another, where that person has been entrusted with the care or management of such property by law or by legal act.

In simple terms: if a person who has undertaken to manage a company’s assets violates the rules of proper management, knowing that he or she is causing damage to those assets, then that person commits breach of trust.

In a corporate context, the offence may be committed by: members of the Board of Directors of a société anonyme/S.A.; the Managing Director or Executive Director; the General Manager or Director; or any other executive to whom authority has been assigned, even partially or for a specific act, to bind the company vis-à-vis third parties and to make decisions on his or her own initiative and responsibility.

What is crucial is the manager’s so-called “autonomous decision-making power”: it is not sufficient for someone merely to carry out another person’s instructions. The person must have actual decision-making authority.

The Conditions for Establishing the Offence of Breach of Trust

In order for the offence of breach of trust to be established, the following conditions must be met cumulatively:

a) Management authority: The offender must have lawfully undertaken the management of the company’s assets, whether by law, under the company’s articles of association, or pursuant to a resolution of the General Meeting or the Board of Directors. It is also sufficient that such authority has effectively been entrusted to him or her in practice, meaning that the person acts as a de facto manager/director of the company.

b) External legal act or omission: An internal decision or a mere physical act is not sufficient. An external act vis-à-vis third parties is required, such as the signing of a contract, the acceptance or granting of a loan, the sale of an asset, and so on. An omission may also suffice, for example the failure to pursue a company claim before it becomes time-barred, or the failure to terminate an evidently harmful contract.

c) Breach of the rules of diligent management: According to Article 102 paras. 1 and 2 of Law 4548/2018: “Each member of the Board of Directors shall be liable towards the company for damage suffered by the company due to an act or omission constituting a breach of his or her duties. Such liability shall not exist if the member of the Board of Directors proves that, in the performance of his or her duties, he or she exercised the diligence of a prudent businessperson operating under similar circumstances. Such diligence shall also be assessed on the basis of the capacity of each member and the duties assigned to him or her by law, the articles of association or a resolution of the competent corporate bodies.”

It should be noted that, in each company, the rules according to which its directors or managers must act are further specified in the articles of association, the company’s internal regulations, contracts and other binding documents. A breach of the rules of diligent management exists where the limits set by good faith and business practices are clearly and manifestly exceeded, namely where the representative authority of the person managing the company is exercised abusively.

d) Certain and definitive damage to the company’s assets: The damage must be certain, not hypothetical, and definitive, not temporary. It is assessed by comparing the situation resulting from the act in question with the situation that would have existed had that act not taken place. It should be noted that such damage to the company’s assets may also take the form of the frustration of their further increase.

e) Direct intent: The manager must know that his or her act causes damage to the company. In other words, he or she must either seek to cause damage or foresee the damage as a necessary consequence of the act and accept it. If the person does not consider the damage to be a necessary consequence of the act, the requisite intent for establishing the offence in question is not present.

When Breach of Trust Is NOT Committed: The Business Judgment Rule

The most important practical protection afforded to a company director or manager when an issue of breach of trust arises is established by the Business Judgment Rule, which in Greece is expressly enshrined in Article 102 para. 4 of Law 4548/2018.

According to this rule, no liability arises for a director or manager in respect of a decision that:

• is reasonable, meaning that it was taken on the basis of objective criteria, having regard to the specific time and circumstances, and does not expose the company to excessive or disproportionate risks;
• was taken in good faith, namely with a genuine intention to promote the corporate interest, without intent to harm the company;
• was based on sufficient information, in light of the circumstances prevailing at the time, taking into account the complexity of the matter to which the decision relates, the nature, size and type of the company’s business activity, as well as the importance of the specific decision for the company; and
• was aimed exclusively at serving the corporate interest, without any conflict of interest between the director or manager and the company, and without pursuing a personal benefit for himself/herself or for a third party to the detriment of the company.

Where the above conditions are met, the objective elements of the offence of breach of trust are excluded. In other words, if all elements of the Business Judgment Rule are satisfied, no issue of criminal liability arises at all. This is because conduct which is considered lawful and permissible under company law — namely Law 4548/2018 — cannot be treated as criminally punishable; see also Article 20 of the Greek Criminal Code.

For the purposes of assessing whether the above conditions are met, the relevant point in time is the moment when the decision was taken. Therefore, if a decision later proves to be wrong and harmful, but at the time it was made it was considered reasonable, and the manager or director was sufficiently informed, acted in good faith and in the company’s interest, then he or she has not committed breach of trust.

A typical example is judgment no. 3998/2022 of the Three-Member Court of Appeal of Athens, unpublished, in which the members of the Board of Directors of an industrial société anonyme, which was “on the verge of bankruptcy”, were acquitted of felony breach of trust. The Court found that the sale of the company’s real estate assets — although at a price lower than their objective tax value — was based on a reliable valuation report and was necessary for the rescue of the business and the preservation of jobs, preventing bankruptcy, which would have led to an even greater depreciation of the company’s assets.

Breach of the Business Judgment Rule and Criminal Liability – Burden of Proof

At this point, it should be noted, however, that a breach of the Business Judgment Rule does not automatically lead to criminal liability on the part of the company’s director or manager. In addition to such breach, the remaining elements of Article 390 of the Greek Criminal Code, as set out above, must also be satisfied — and in particular, a serious breach of the rules of diligence and intent.

Nevertheless, partial fulfilment of the conditions of the rule — for example, good faith without sufficient information — may be assessed as an indication of diligent management in the context of the overall evaluation of the conduct of the company director or manager accused of breach of trust.

The accused director or manager does not bear the burden of proving that he or she complied with the Business Judgment Rule. On the contrary, all conditions leading to the establishment of the objective elements of the offence of breach of trust must be clearly inferred in order for liability towards the legal entity to be established.

This is because, in criminal proceedings, the principle of in dubio pro reo applies, meaning that where the court has doubts as to whether the elements of the objective actus reus are satisfied — including whether there has been a breach of the Business Judgment Rule — it must rule in favour of the accused.

For this reason, in practice, the accused has an interest in invoking and substantiating his or her compliance with the Business Judgment Rule — in particular through evidence concerning the basis on which the decision was taken, the information available at the time, the factors considered, and so on — since such evidence may provide strong exculpatory arguments.

Indicative Cases from Case Law

By judgment no. 532/2011 of the Greek Supreme Court (Areios Pagos) (published on the Supreme Court’s website), the conviction of managers/directors of a société anonyme was upheld. They had frustrated the company’s ability to obtain further financing by extensively receiving accommodation cheques without underlying real transactions, resulting in the breakdown of the company’s cooperation with banks and its inability to secure financing.

At the same time, in the above judgment it was held that the members of the Board of Directors committed breach of trust because, in clear violation of the prohibition on returning contributions to shareholders, they decided — while the company was facing significant liquidity problems — to return corporate capital to certain shareholders through the purchase of own shares, without the statutory conditions being met; cf. Articles 48 and 49 of Law 4548/2018. Their purpose was to favour those shareholders. As a result, the company’s net equity was reduced and it was deprived of funds that were absolutely necessary for the continuation of its operations.

By judgment no. 627/2020 of the Greek Supreme Court, the Court confirmed that breach of trust is not established where the inability to repay a loan is due to objectively unforeseeable factors and the original granting of the loan followed a diligent assessment.

Judgment no. 523/2022 of the Greek Supreme Court (published on the Supreme Court’s website) quashed a conviction rendered by the Five-Member Court of Appeal, because the judgment did not clearly specify what the breach of the rules of diligent management consisted of, nor did it set out factual circumstances showing that the appellant had exceeded and abused his authority to represent the respondent company. The Court emphasized that cheque exchanges aimed at enhancing liquidity do not automatically constitute breach of trust.

Special Cases of Interest

a) A General Meeting resolution does not always remove liability:
If the General Meeting approves a harmful decision, but that decision does not meet the requirements of the Business Judgment Rule — that is, it was not taken in good faith, on the basis of sufficient information, and exclusively in the corporate interest — the members of the Board of Directors who implemented it may still face criminal liability.

However, in this specific case, the persons who have an interest in the preservation of the legal entity’s assets are, in substance, the very persons who agreed to their harmful disposal. As a result, any need for criminal-law protection of those assets may be considered to cease to exist. For this reason, in such cases, it appears more appropriate to accept that the unlawful character of the act is removed.

b) Dissenting members of the Board of Directors are not liable:
If a member of the Board of Directors voted against a harmful decision, he or she does not bear liability for breach of trust if the legal act decided upon is subsequently carried out.

This is because collective liability is contrary to the fundamental principle of criminal law concerning personal liability, since no one should be punished for another person’s act. For this reason, the minutes of the meeting recording the negative vote constitute critical evidence for the acquittal of the dissenting member in such a case.

c) A company crisis does not automatically amount to breach of trust:
When a company is in financial distress, its management executives are required to make difficult decisions under pressure and uncertainty. In such circumstances, even decisions that, in hindsight, appear harmful may have been the only realistic option.

The court must always assess the matter on the basis of the information available at the time the decision was made, and not with the benefit of hindsight; see also the above-mentioned judgment no. 3998/2022 of the Three-Member Court of Appeal of Athens.

Instead of a Conclusion

It follows from the above that the offence of breach of trust is not a “trap” for every mistaken business decision. Both the law and the courts recognize that business activity inherently involves risks and that not every failure should be turned into a criminal matter. As the Greek Supreme Court itself has held, “excessive strictness against corporate directors would lead to timidity and stagnation of the company’s business activity and would further encourage the filing of abusive criminal complaints against members of the Board of Directors” — see judgment no. 1698/2013 of the Greek Supreme Court. For this reason, criminal liability for breach of trust should be established only in those extreme cases where the manager or director, knowing that he or she is causing damage to the company, acts by abusing his or her management authority, in manifest breach of the rules of proper management. Accordingly, for managers and directors themselves, the safest way to avoid such accusations is to properly document their decisions — namely, to be able to demonstrate that they acted in good faith, on the basis of sufficient information, and exclusively in the company’s interest. In practice, this can be achieved through complete Board minutes, well-documented analyses, expert opinions where necessary, and transparent decision-making.

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.