Corporate Manager Liability When Disputes Arise

Who are corporate managers, and why are they at the center of disputes?

Under the 2020 Enterprise Law, “corporate managers” include company managers (chairpersons of members’ councils, members of members’ councils, company chairpersons, board members, directors/general directors…) and individuals holding other managerial titles under the charter. The legal representative — who signs transactions and participates in proceedings on the company’s behalf — is usually also a manager and the enterprise’s “legal face”.

When disputes arise, managers are placed on three “fronts” at once. First, with the company and its owners: were their decisions in the company’s interest, did they cause harm? Second, with third parties (partners, creditors): they sign on the company’s behalf, but if they signed beyond authority or the company becomes insolvent, third parties will seek to pin personal liability on the signatory. Third, with state authorities: tax, labor, and investment violations during their tenure may lead to personal liability.

What makes the manager’s position fragile is that they decide with incomplete information and under multi-directional pressure — from owners demanding profit, from the market demanding speed — yet when disputes erupt, every decision is “re-examined” through the lens of consequences. A clear understanding of the liability framework helps managers both decide boldly and protect themselves.

The duties of care and loyalty: two pillars of manager liability

The 2020 Enterprise Law imposes core duties on managers, of which the two foundational ones are:

The duty of loyalty: managers must act in the company’s best interests and may not exploit their position or inside information for self-benefit. Specifically, managers may not use the company’s information, know-how, or business opportunities for private gain or to serve other organizations’ or individuals’ interests; may not use company assets contrary to regulations; and must promptly and fully disclose to the company transactions in which they or their related persons have an interest.

The duty of care: managers must exercise their assigned rights and obligations honestly, carefully, and to the best of their ability to secure the company’s maximum lawful interests. In practice, “care” is assessed through the decision-making process: was information fully gathered, was professional advice sought where needed, were charter procedures and authority properly followed? A loss-making business decision is not automatically a breach of the duty of care — the law does not punish reasonable business risk, but punishes carelessness and negligence in the decision process.

Under the 2020 Enterprise Law, managers breaching these duties bear personal or joint liability: disgorging lost benefits, returning benefits obtained from the breach, and compensating all damages to the company and third parties. This is a very heavy sanction — not only compensating damages but also “giving back” every benefit obtained from the breach.

Compensation liability to the company: when does it arise?

Managers’ compensation liability to the company arises in the following typical situations:

• Management contrary to regulations causing harm: under Clause 4 of Article 162 of the 2020 Enterprise Law, the director or general director must manage day-to-day business in accordance with the law, the company charter, the labor contract, and resolutions of the board/members’ council. Where management contrary to regulations and to the assigned rights and obligations causes harm to the company, the manager is liable before the law and must compensate the company.
• Unapproved self-dealing transactions: contracts and transactions between the company and managers or their related persons must be approved by the GMS or the Board within authority (Article 167 of the 2020 Enterprise Law). Without valid approval, the signatories, shareholders, board members, or directors/general directors involved must compensate resulting damages and return to the company the benefits obtained from performing those contracts or transactions.
• Decisions beyond authority: board members voting to approve decisions beyond authority (e.g., approving major transactions within GMS authority) — where harm results, those voting in favor bear joint liability.
• Supervisory failures: managers who knew or should have known of subordinates’ violations harming the company but failed to stop or report them — liability may arise from the supervisory duty of care.

On the burden of proof, the company (or shareholders suing derivatively) must prove: the manager committed a duty breach, the company suffered actual harm, and the causal link between the breach and the harm. In adjudication practice, courts typically examine the full decision-making context rather than only the loss outcome — which is why managers need to prepare records proving a careful decision process from the outset.

Joint liability in disputes with third parties

More dangerous than liability to the company is when managers are “pulled” into disputes by third parties — partners, creditors, state authorities — in a personal capacity. Common situations:

Signing beyond authority: the legal representative signs a contract exceeding the representative scope stated in the charter (e.g., the charter caps signable contract values but the representative signs a larger contract). In disputes, the third party may argue the signatory bears personal liability for exceeding authority. For self-protection, managers must ensure every important transaction has a duly authorized approval resolution before signing — and keep that resolution carefully.

Personal guarantees for company obligations: in many credit transactions, banks require the legal representative or major shareholders to personally guarantee the company’s loan. When the company becomes insolvent, the guarantor must repay in its place — this is an independent civil liability; the excuse “I signed in the company’s capacity” will not work. Managers must read carefully every document they sign, clearly distinguishing when they sign “on behalf of the company” from when they sign “in a personal capacity”.

Liability during the company’s distress: when the company shows signs of insolvency, managers who keep signing transactions increasing debt obligations or moving assets out of the company to evade obligations may face compensation liability to creditors, even criminal liability where misappropriation signs exist. This phase demands exceptional caution and lawyer consultation before every important decision.

Administrative and criminal liability: tax, social insurance, environmental, and labor safety violations during the manager’s tenure may lead to personal penalties against the head, and in serious cases criminal prosecution. “I didn’t know what accounting did” is no defense where the law imposes head-of-entity responsibility.

Managers sued by shareholders: scenarios and responses

An increasingly common scenario: minority shareholder groups sue managers (usually a general director appointed by the majority) alleging management that harmed the company or self-dealing. The suit may be filed in the company’s name or in the shareholders’ own name as directly harmed parties.

When in this situation, managers should act in sequence: first, preserve all records relating to the questioned decisions — meeting minutes, proposals, reports, email exchanges, professional advice consulted. Records proving a careful decision process are the most important “shield”. Second, do not destroy or alter documents on your own — this not only loses favorable evidence but may be assessed as concealing violations. Third, hire an independent lawyer from the outset — do not share a lawyer with the company or with the suing shareholder group, as interests have conflicted. Fourth, assess settlement prospects: many manager suits end in agreement (adjusting governance mechanisms, conditional resignation of the manager) rather than judgment, because both sides want to avoid a prolonged suit paralyzing the company.

On the company side, when a manager is sued, the board/members’ council needs a conflict-of-interest handling mechanism: the sued person does not vote on matters relating to the suit, the company hires independent legal counsel for assessment, and considers suspending the position during resolution where necessary to protect company operations.

Protecting managers: internal regulations, authority delineation, liability insurance

Wise managers do not wait for disputes to protect themselves. Preventive measures should be established from appointment:

Clear internal regulations: corporate governance regulations, approval authority delegation rules (who may decide up to what limits), decision procedures for important transactions. The more detailed the regulations, the easier for managers to prove they acted within authority and procedure. In particular, every important decision should be in writing with full approval signatures per the delegation — “verbal decisions” are the manager’s enemy when disputes arise.

Written authority delineation: the labor contract, appointment decision, and company charter must clearly describe each managerial title’s authority scope. When assigned work beyond the ordinary scope, request a specific written assignment from the competent level — important evidence if the decision is later questioned.

Directors & Officers liability insurance (D&O): D&O insurance is common worldwide and gradually being adopted by large Vietnamese enterprises. D&O covers managers against compensation claims arising from managerial acts — lawyer fees, settlement costs, compensation amounts (within policy terms). When negotiating appointment at companies with high dispute risk, managers should include a requirement for the company to purchase D&O as an appointment condition.

Indemnification agreements: the company undertakes to reimburse managers’ legal costs and losses arising from duty performance — within legally permitted scope. This clause should be in the labor contract or appointment resolution, with clear exceptions (no reimbursement for intentional legal violations or self-dealing).

A record-keeping culture: the simplest yet most effective measure — systematically retaining all documents relating to important decisions: proposals, analyses, professional opinions, meeting minutes, approval emails. When disputes arise years later, human memory fades but records do not.

The lawyer’s role in manager-related disputes

Manager-related disputes are distinctive for multi-directional conflicts of interest: the company’s interests, one shareholder group’s, another’s, and the manager’s own may not coincide — even oppose each other. Each side having independent counsel is therefore almost mandatory; one lawyer should not serve multiple sides in the same case.

The manager’s lawyer focuses on: assessing the legality of questioned decisions based on actual records; building arguments on compliance with the duties of care and loyalty; collecting and systematizing evidence proving the decision process; negotiating maximally protective settlement plans (including negotiating resignation conditions and legal-cost reimbursement); and representing in proceedings where no agreement is reached.

The company/shareholder lawyer focuses on: identifying violations and damages, quantifying damages with evidence; assessing recoverability (does the manager have assets for enforcement, is there D&O insurance); designing a strategy that both pressures and opens negotiation — because the ultimate goal is usually recovering damages and restabilizing management, not “taking down” the individual at all costs.

In all cases, early action is decisive. Managers sensing their decisions may be questioned should consult a lawyer immediately — before signing explanatory documents, before attending “questioning” meetings, and absolutely before signing any compensation commitments.

Frequently asked questions

Useful links

When you should talk to a lawyer

• You are a manager and your decisions are being questioned or threatened with suit by shareholders or the company.
• You are asked to sign a compensation commitment or admission of liability for a past decision.
• You sign transactions as representative and are unsure of your authority limits.
• The company shows signs of financial distress and you need to assess personal risk before each further decision.
• You are negotiating a management appointment at a high-dispute-risk company and need protective mechanisms (D&O, indemnification).
• The company needs to handle conflicts of interest when an incumbent manager is sued.