Today's article in the Compliance series is a continuation of previously discussed topics regarding the liability of company management board members ( #21 , #23 , #25 , #26 ). While in previous publications we described how a management board member can be released from liability for failing to file a bankruptcy petition, in today's article we will discuss the consequences for company representatives. Today's article will discuss the sanction of a court order prohibiting a person from conducting business activity if they are legally obligated to file a bankruptcy petition but fail to do so within the statutory deadline.
What are the grounds for imposing a ban on conducting business activity?
The grounds for a business ban are regulated in Article 373 §1 of the Bankruptcy Law and constitute a closed list. A business ban may be imposed on a person who, through their own fault:
- being obliged to do so, did not file a bankruptcy petition within the statutory deadline, or
- by actually managing the debtor's enterprise, contributed to the failure to file a bankruptcy petition within the statutory deadline, or
- after the declaration of bankruptcy, the debtor failed to release or indicate the bankrupt's assets, accounting books, correspondence or other documents, including data in electronic form, which he or she was obliged to release or indicate by law, or
- as a bankrupt, after the declaration of bankruptcy, hid, destroyed or encumbered assets included in the bankruptcy estate, or
- as a bankrupt, in the course of bankruptcy proceedings, failed to perform other obligations incumbent on him under the law or a court or judge-commissioner's decision, or otherwise obstructed the proceedings.
Who can submit an application for a ban on conducting business activity?
A motion may be filed by a creditor against a person specified in Article 373 of the Bankruptcy Law. However, the motion must prove that one of the above-mentioned conditions exists, which constitutes the basis for the motion to deprive the creditor of the right to conduct business activity and perform certain functions.
When imposing a ban on conducting business activity, the court also takes into account the degree of guilt of such a person, as well as the effects of the actions taken by him, in particular the reduction in the economic value of the bankrupt's enterprise and the extent of the harm to the creditors.
What is the penalty?
The penalty is regulated by Article 373 §3 of the Bankruptcy Law and ranges from one to ten years. This amount largely depends on the degree of guilt of the responsible party, as well as the consequences of their actions or omissions. Omissions include a reduction in the value of the enterprise and the extent of harm to creditors.
The assessment of a given case always depends on the court, which determines whether the degree of guilt is so insignificant that it would be necessary to impose a one-year ban on conducting business activity as the minimum limit, or a maximum of ten years.
Is it possible to avoid liability under Article 373 of the Bankruptcy Law?
Due to the introduction of the Restructuring Law as a separate procedure in the event of a company being threatened with insolvency, this act provides the possibility of avoiding liability under Article 373 of the Bankruptcy Law. Even if the entitled person fails to file a bankruptcy petition within the statutory deadline, i.e., despite the existence of the condition set forth in Article 373, paragraph 1, item 1, the court may dismiss the motion for a prohibition on conducting business activity if a motion to open one of the restructuring proceedings is filed at the same time and the extent of the harm to the creditors is minor.
It should be noted, however, that the mere submission of an application to open restructuring proceedings is not sufficient for the court to dismiss an application for a ban on conducting business activity, and it is necessary for the respondent to prove that the harm to the creditors is insignificant.
Who can find out about a business ban that has been imposed?
The details of a person who has been legally prohibited from conducting business activity are subject to disclosure through an ex officio entry in the National Debt Register. Pursuant to Article 11, Section 5 of the Act on the National Debt Register, the details of the person who has been prohibited from conducting business activity and the details of the proceedings in which the prohibition was imposed cease to be public after three years from the day following the expiry of the prohibition period.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of December 7, 2022
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