Recent amendments to Georgia's insolvency and entrepreneurship legislation, together with a shift in judicial practice that has consolidated over the past two to three years, have materially altered the framework governing liability of controlling persons against state-owned enterprises. For foreign creditors holding claims against Georgian state-linked entities — whether through supply contracts, loan facilities, or enforcement of foreign awards — the changes introduce both new recovery avenues and new procedural demands that require careful early analysis.
Georgia has progressively aligned its insolvency and corporate governance legislation with European standards, and the treatment of controlling-person liability reflects that trajectory. Under the earlier framework, the practical route to recovering against a state-owned enterprise that had become insolvent or payment-delinquent was substantially constrained: creditors could assert claims against the entity itself, but piercing through to persons exercising effective control — including state bodies or parent entities nominally acting as shareholders — was procedurally difficult and rarely successful before Georgian courts.
The position has shifted on two fronts. First, Georgia's insolvency legislation has been amended to extend the concept of a "controlling person" beyond formal shareholding to encompass entities or individuals who exercise factual dominance over a debtor's decision-making. This functional test — applied by Georgian courts with increasing consistency since approximately 2022–2023 — means that a state body, ministry, or holding structure that directs the commercial conduct of a nominally separate enterprise may now attract subsidiary liability for the enterprise's obligations in insolvency proceedings, subject to the creditor establishing the factual control nexus.
Second, Georgia's entrepreneurship law has been revised to sharpen the standard of care owed by managers and supervisory board members of legal entities. Applied to state-owned enterprises, this has created a parallel track: rather than relying solely on insolvency proceedings, a creditor in certain circumstances may pursue a claim grounded in breach of the management duty of care — a route that, in principle, is available outside formal insolvency and that courts have begun to examine on the merits rather than dismissing at the threshold stage.
The combined effect is a landscape in which a foreign creditor facing a non-performing Georgian SOE has a broader menu of potential respondents and legal theories than was available three years ago. That broader menu, however, comes with its own complexity: the procedural and evidentiary requirements for each route differ materially, and the interaction between insolvency proceedings and direct managerial liability claims has not yet been fully clarified by Georgian appellate courts.
The relevance of these developments is not uniform across all foreign creditors. Those most directly affected are creditors holding contractual claims against Georgian state-owned or state-linked enterprises in sectors where the Georgian state retains material ownership: infrastructure, energy, water, and — with increasing frequency — financial institutions operating with state participation.
For creditors in these sectors, the controlling-person liability framework is significant for at least three reasons.
First, SOE insolvency in Georgia has historically been complicated by the state's capacity to restructure, recapitalise, or formally liquidate entities in ways that do not follow the standard commercial insolvency sequence. A framework that makes the controlling entity — potentially the state itself, or a subordinate ministry — susceptible to liability provides a creditor with leverage that was previously unavailable or required bespoke constitutional challenge.
Second, the evidentiary standard for establishing factual control over an SOE is, in practice, more accessible than in a purely private-sector context. State ownership structures in Georgia tend to be documented through publicly registered shareholder agreements, ministerial orders, and supervisory board compositions. These documents, once obtained through disclosure or public registry requests, can establish the control nexus with greater reliability than in cases involving opaque private beneficial ownership.
Third, for foreign creditors who have obtained a foreign arbitral award or court judgment against a Georgian SOE and are now seeking to enforce that award in Georgia, the controlling-person liability developments are potentially relevant at the enforcement stage. Where an SOE has been dissolved, restructured, or stripped of assets in anticipation of enforcement, a creditor may have grounds to assert that the controlling person — including a state instrumentality — should bear liability for conduct that frustrated the enforcement. Georgian courts have not yet issued definitive guidance on this interaction, but early indicators from first-instance decisions suggest increasing receptiveness to the argument.
Foreign creditors with Russian-law aspects to their claim against a Georgian SOE — for example, those pursuing a cross-border recovery that involves both Russian and Georgian-registered entities in the same corporate group — should note that the two jurisdictions approach controlling-person liability with different procedural architectures. Coordinating insolvency strategy across both systems requires counsel experienced in both, and early-stage planning before either insolvency is formally opened is materially more effective than reactive participation. For creditors managing this cross-border dimension, the Cross-border Disputes (/jurisdictions/georgia/disputes/) and Asset Tracing & Recovery (/jurisdictions/georgia/asset-recovery/) practice pages describe the firm's approach to multi-jurisdictional recovery coordination.
For foreign creditors who have not yet assessed whether their existing claim against a Georgian SOE is structurally sound under the updated liability framework, the window before formal insolvency proceedings are opened is the operative period for that analysis. Once insolvency is filed, the options available narrow and the creditor's procedural position is defined by the order in which claims are registered.
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The practical priority for foreign creditors is a structured assessment of three questions, ideally conducted before any formal insolvency or enforcement proceeding is initiated.
The first is the control nexus question: can the creditor identify and document the entity or person exercising factual control over the Georgian SOE against which the claim is held? For SOEs, this analysis typically begins with the public registry and ministerial shareholding records, but effective preparation for a controlling-person claim requires going further — mapping supervisory board appointments, tracing instructions issued to management, and identifying the decision-making chain for the specific transactions that gave rise to the debt.
The second is the route selection question: is the claim better pursued through the insolvency track (asserting creditor rights in formal insolvency and seeking subsidiary liability of the controlling entity) or through the direct managerial liability track (pursuing a breach-of-duty claim against management outside insolvency)? The answer depends on the current financial position of the SOE, the nature of the creditor's claim, and the availability of assets. In practice, the two routes are not always mutually exclusive, and a creditor's position is strongest when both are analysed in parallel before one is elected.
The third is the enforcement compatibility question: if the creditor holds or expects to obtain a foreign arbitral award, is that award capable of recognition and enforcement in Georgia, and how does the enforcement strategy interact with the controlling-person liability framework? Georgia is a party to the New York Convention and its courts have a reasonably consistent record of recognising foreign arbitral awards — but the procedural steps for recognition, the grounds on which a state-linked respondent may challenge recognition, and the asset attachment mechanisms available upon recognition all require Georgian-law specific advice at the planning stage.
Vetrov & Partners advises foreign creditors on cross-border recovery matters involving the post-Soviet and South Caucasus region, including matters with a Russian-law dimension that run in parallel with Georgian proceedings. For matters requiring Georgian-law advice specifically, the firm works with trusted local counsel in Tbilisi. The firm's Enforcement of Foreign Judgments & Awards (/jurisdictions/georgia/enforcement/) practice page sets out the recognition framework in greater detail.
"The extension of liability to entities exercising factual — rather than merely formal — control over Georgian SOEs represents a meaningful structural shift. Foreign creditors who have written off recovery prospects against state-linked entities in Georgia should reassess that position under the current framework." — Giorgi Kavtaradze, Contributing Regional Analyst — Georgia, Vetrov & Partners
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Q: What specifically changed in Georgian law regarding liability of controlling persons of state-owned enterprises?
A: The principal development is a functional extension of the "controlling person" concept under Georgian insolvency legislation beyond formal shareholders to entities exercising factual dominance over a debtor's decision-making. Applied to state-owned enterprises, this means that a state body, ministry, or holding entity that directs an SOE's commercial conduct may now attract subsidiary liability for that SOE's debts in insolvency. A parallel development in Georgia's entrepreneurship legislation sharpened the standard of care owed by managers and supervisory board members, opening a second route grounded in breach of management duty that may be available outside formal insolvency proceedings. Both changes have been reinforced by a shift in Georgian judicial practice, with courts applying the functional control test with greater consistency since approximately 2022–2023.
Q: Which foreign creditors are most affected by these developments, and how does the SOE context change recovery prospects?
A: The creditors most directly affected are those holding contractual claims — under supply agreements, loan facilities, or foreign arbitral awards — against Georgian SOEs in infrastructure, energy, water, and state-linked financial institutions. The SOE context affects recovery prospects in two material ways. First, state ownership structures in Georgia are generally better documented through public registries and ministerial records than private beneficial ownership, which makes establishing the factual control nexus procedurally more accessible. Second, the updated framework gives creditors leverage against the controlling entity — potentially a state instrumentality — that was previously unavailable or required bespoke constitutional challenge. Creditors who had assessed recovery prospects as limited under the prior framework should reassess under current Georgian law before any insolvency is formally opened.
Q: What should a foreign creditor holding a claim against a Georgian SOE do now, in light of these developments?
A: Three steps merit immediate attention. First, assess whether the entity exercising factual control over the SOE can be identified and documented — public registry records and supervisory board compositions are the starting point. Second, evaluate whether the insolvency track or the direct managerial liability route is more appropriate given the SOE's current financial position and the nature of the creditor's claim. Third, if the creditor holds or expects to hold a foreign arbitral award, assess how the recognition and enforcement procedure in Georgia interacts with the controlling-person liability strategy. All three analyses are most effective when conducted before formal insolvency proceedings are opened, as procedural options narrow materially once the insolvency estate is established. Specific Georgian-law advice from local counsel in Tbilisi is necessary for each step; Vetrov & Partners coordinates that instruction as part of a broader cross-border recovery strategy where a Russian-law dimension is also present.
Vetrov & Partners is a Russian boutique law firm established in 2009, recognised by Pravo-300 for eight consecutive years. For cross-border recovery matters involving the South Caucasus and post-Soviet region — including matters where Russian-law and Georgian-law dimensions run in parallel — the firm advises foreign creditors on strategy, coordinates instruction of trusted local counsel in the relevant jurisdiction, and manages the Russian-law aspects of multi-jurisdictional recovery.
The firm's Restructuring & Insolvency practice advises foreign creditors, including trade creditors and institutional investors, on recovery strategy in Russian and cross-border insolvency matters. With over 1,000 matters handled since inception, the team offers direct partner involvement on every engagement.
Enquiries: info@vetrovpartners.com | WhatsApp / Telegram: +7 (983) 510-38-76 | t.me/vitvetcom
— Giorgi Kavtaradze Contributing Regional Analyst — Georgia, Vetrov & Partners vetrovpartners.com/contributions/
This publication is provided for informational purposes only and does not constitute legal advice under Russian or any other applicable law. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Vetrov & Partners is a Russian-qualified law firm. For matters governed by foreign law or requiring local admission in another jurisdiction, we collaborate with trusted counsel in the relevant jurisdiction. For advice regarding your particular situation, please contact info@vetrovpartners.com.