Exceeding Authority by a Manager: Trends in Judicial Practice and Their Impact on the Validity of Transactions

First trend: strengthening the presumption of good faith on the part of the counterparty

The Association Agreement obliges Ukraine to harmonize its legislation with the acquis communautaire, and corporate law is no exception (Chapter 6, Section IV). A guiding principle in this regard is Article 9 of Directive (EU) 2017/1132, which enshrines a simple yet fundamental idea: restrictions on a manager’s powers, even if they are expressly set forth in the articles of association and, accordingly, disclosed to the counterparty, apply exclusively to internal corporate relations and cannot affect the validity of the company’s contracts with third parties. 

The Ukrainian model, enshrined in Part 3 of Article 92 of the Civil Code of Ukraine, is conceptually similar but formulates the counterparty’s protection differently: unlike the approach of Article 9 of Directive (EU) 2017/1132 (“even if disclosed”), the Ukrainian framework allows the counterparty’s protection to be “pierced” in the event of proven bad faith, negligence, or actual knowledge.

Both approaches are based on the full or partial implementation of the doctrine of apparent authority: a counterparty who relies on the outward manifestations of a manager’s authority must be protected, even if the manager did not actually have such authority. The counterparty’s good faith is presumed. 

However, it is not the rules themselves but their interpretation that is decisive. It is precisely here that Ukrainian judicial practice demonstrates a telling evolution. 

Despite a number of conflicting decisions by the Supreme Court, beginning with the adoption of Resolution No. 11 of the Plenum of the High Commercial Court of Ukraine dated May 29, 2013 (para. 3.3), the absence of independent legal significance of the fact that a manager exceeded their authority has been repeatedly confirmed in Ukraine. Subsequently, this was reflected in the ruling of the High Specialized Court of Ukraine dated April 29, 2015, in case No. 6-42893св14, in the resolutions of the Supreme Court of Ukraine dated April 27, 2016, in case No. 6-62цс16, dated November 30, 2016, in Case No. 725/2330/14-ц, dated April 12, 2017, in Case No. 608/969/13-ц, and in the resolutions of the Grand Chamber of the Supreme Court dated June 27, 2018, in Case No. 668/13907/13-ц, dated December 3, 2019, in Case No. 904/10956/16 (para. 68), dated March 13, 2024, in Case No. 757/23249/17 (para. 157), and dated December 3, 2025, in Case No. 914/768/22 (para. 91). 

A significant step forward was taken in the resolution of the Grand Chamber of the Supreme Court dated December 3, 2025, in Case No. 914/768/22: The court explicitly stated that a counterparty’s bad faith cannot be proven by the fact that the articles of association contain restrictions on the manager’s powers, and the preamble to the contract states that the manager acts in accordance with the articles of association. This interpretation eliminates one of the most common formal arguments used in disputes regarding the invalidity of transactions.

At the same time, in the same ruling dated December 3, 2025, in Case No. 914/768/22, another point is evident: The court recognizes that the Unified State Register is a source of “legitimate reliance” on information regarding the manager’s powers, and a failure to properly verify the restrictions listed therein may constitute a sign of the counterparty’s negligence. This provision requires cautious application of the law: if “failing to check the register” is automatically equated with “could not have been unaware,” the presumption of the counterparty’s good faith risks becoming a fiction.

In light of the above, three guidelines for the further development of judicial practice can be identified:

(1) First, internal corporate restrictions on a manager’s powers must not invalidate the company’s contract with the counterparty; therefore, changes in approaches to interpreting Part 3 of Article 92 of the Civil Code of Ukraine will be increasingly influenced by Article 9 of Directive (EU) 2017/1132, which is only natural;

(2) second, the Unified State Register will remain a tool for protecting the counterparty; however, the assessment of its information should not be conducted formally: the doctrine of apparent authority requires an individual analysis of whether the manager gave the counterparty a reasonable impression of having authority; therefore, criteria will gradually be developed, with a clear conceptual rationale, under which a court will find that the counterparty “could not have been unaware” of the limitations on authority;

(3) third, the long-standing and systematic equating of internal management relations between a manager and a company with agency relations will become a thing of the past: in the European tradition, a manager is an organ of the company, and his actions are the actions of the company itself, therefore, limitations on authority may serve as grounds for holding such a manager liable in the sphere of corporate relations, but are not and cannot be grounds for declaring a contract concluded by the company invalid.

Second trend: a shift away from the notion that a business entity’s manager is its representative

A systemic problem in Ukrainian judicial practice is the application of Article 241 of the Civil Code of Ukraine (provisions regarding a representative’s execution of legal acts beyond their authority) to contracts concluded by a company’s manager outside the scope of their authority. This classification is evident in each of the aforementioned cases, with one exception: Case No. 914/768/22.

In its ruling of December 3, 2025, in Case No. 914/768/22, the Grand Chamber of the Supreme Court explicitly recognized the absence of a representative relationship between the manager and the company (para. 126). Somewhat earlier, in its ruling of December 18, 2024, in Case No. 916/379/23, the Grand Chamber of the Supreme Court concluded that the company’s governing bodies are not independent subjects of civil legal relations (para. 83). This is of fundamental importance: a representative, unlike an executive body (manager), is always an independent subject of legal relations, and it is precisely this difference that determines which rules should apply to the assessment of a manager’s actions. 

Continuing this line of reasoning, it is worth noting that a shift in Ukrainian judicial practice away from the mechanical application of the concept of representation to the assessment of a company director’s actions is inevitable. Attempts to “fit” a company director’s actions within the framework of Article 241 of the Civil Code of Ukraine will face increasingly greater conceptual difficulties. It is precisely here that the trend toward strengthening the presumption of a counterparty’s good faith finds its logical continuation: a company cannot invoke its own internal corporate restrictions to avoid fulfilling obligations to good-faith counterparties, since when entering into transactions, the manager acted not as a third party but as the embodiment of the company itself. 

Third trend: refusal to challenge company contracts based on claims by its members/shareholders

Influenced by significant ECHR judgments against Ukraine dated October 18, 2005, in the case of “Terem Ltd., Chechetkin, and Olius v. Ukraine” (paras. 28–30) and of December 21, 2017, in the case of “Feldman and Bank ‘Slavyansky’ v. Ukraine” (para. 30), the idea of the separate “personality” of a company is gradually taking root in the judicial rulings of the Supreme Court. 

In practice, this means the consistent establishment as a general rule of the proposition that a participant (shareholder) in a company, even a majority shareholder, is not and cannot be considered a victim of a violation of the company’s own rights: the resolutions of the Grand Chamber of the Supreme Court dated October 8, 2019, in Case No. 916/2084/17 (para. 8.7), dated October 15, 2019, in Case No. 905/2559/17 (para. 6.11), dated December 3, 2019, in Case No. 904/10956/16 (para. 80), dated April 7, 2020, in Case No. 904/3657/18 (para. 99), dated July 7, 2020, in Case No. 910/10647/18 (para. 7.11), dated March 1, 2023, in Case No. 522/22473/15-ц (para. 93).

Thus, the Supreme Court has consistently departed from the logic that declaring a company agreement invalid can protect the rights of its participant (shareholder). Such an agreement violates the company’s rights; therefore, the company itself is the sole proper entity to protect them. A participant (shareholder) has other means to achieve this: filing a derivative suit and holding the manager liable in the sphere of corporate relations (Part 1 of Article 54 of the Civil Procedure Code of Ukraine) or convening a general meeting and voting for his removal.

In light of the foregoing, the further development of judicial practice in this category of disputes will evidently be linked to the establishment of well-founded exceptions to the general rule: those cases where a participant (shareholder) will nevertheless have the right to challenge the company’s transactions. A similar path has already been taken by leading European countries. 

Ultimately, the further evolution of the Supreme Court’s practice will occur through the gradual formation of criteria under which such claims will be deemed admissible, including:

(1) an individual assessment of the nature of the violated right; 

(2) determining the presence or absence of an effective means for the company itself to protect the violated rights through its own executive body (especially in the event of the company’s liquidation or the initiation of bankruptcy proceedings and the removal of the manager); 

(3) determining the extent to which a transaction affects the corporate rights of a participant (shareholder), especially when the company is, in fact, the alter ego of its participant (shareholder) and distinguishing between them would be artificial (however, this cannot be established solely on the basis of the fact that the participant holds a 100% stake).

A telling example in this context is the ECHR’s decision in the case of “Feldman and Bank “Slavyansky” v. Ukraine”: despite the general conclusion that the rights of a bank’s shareholder cannot be equated with the rights of the bank itself, the Court recognized Mr. Feldman’s action on behalf of the bank as proper, given that the liquidated bank was objectively unable to defend its rights on its own (para. 28 of the judgment of December 21, 2017). 

Practical conclusions

First, the companies’ counterparties should conduct due diligence before signing the agreement. This should cover three elements: 

(1) verification of the scope of the manager’s powers under the articles of association and other internal corporate documents; 

(2) an assessment of whether the transaction is consistent with the company’s ordinary business activities; 

(3) establishing their own good faith: preserving evidence of inquiries in the Unified State Register and including a clause in the agreement whereby the manager guarantees the existence of authority and the receipt of all necessary approvals.

Second, for the companies themselves and their participants (shareholders), the focus is shifting from challenging contracts to internal corporate control mechanisms. If a contract with a counterparty is highly likely to remain in effect even in the event of a proven abuse of authority, the only effective means of protection are others: 

(1) holding the manager accountable in the realm of corporate relations through a derivative suit and terminating his or her authority; 

(2) improving corporate governance through internal policies, approval procedures, and compliance.

This logically leads to the general conclusion: an executive’s abuse of authority does not constitute a defect in the company’s intent to enter into a transaction with a counterparty.