In today's article, as a continuation of the Compliance series, we will focus on a very important issue, namely the liability of management board members related to ineffective enforcement against the company after the end of the COVID-19 epidemic .
The state of epidemic declared on March 20, 2020, and the resulting restrictions have impacted Polish entrepreneurs, making it difficult or, in many cases, impossible to conduct business. During the two-year-long epidemic, many companies lost the ability to meet their obligations and became insolvent. To address the difficult situation faced by entrepreneurs, the Polish government adopted the Act on Special Support Instruments in Connection with the Spread of the SARS-CoV-2 Virus, which amended the Special Act of March 2, 2020, on COVID-19 (hereinafter referred to as the " COVID-19 Special Act ") regarding the deadline for filing a bankruptcy petition during the state of epidemic threat or the state of epidemic declared due to COVID-19.
As a reminder, insolvency is a state in which a debtor has lost the ability to meet their due pecuniary obligations. This state is presumed to exist if the delay in meeting their pecuniary obligations exceeds three months . Pursuant to Article 11, Section 2 of the Act of February 28, 2003, on Bankruptcy Law, a debtor who is a legal person or an organizational unit without legal personality that is granted legal capacity by a separate act of law is also insolvent when their pecuniary obligations exceed the value of their assets, and this condition persists for a period exceeding twenty-four months . The existence of a state of insolvency is grounds for declaring bankruptcy. A person who, under the law, the articles of association, or the bylaws, has the right to manage the company's affairs and to represent it (individually or jointly with other persons) is obligated, no later than thirty days from the date on which the grounds for declaring bankruptcy arose, to file a bankruptcy petition with the court. Failure to comply with the above obligation will result in serious consequences for company officers, including holding management board members liable for the debts of the limited liability company if enforcement against the company proves ineffective (Article 299 of the Commercial Companies Code).
Article 15zzra of the COVID-19 Special Act suspended the obligation to file a bankruptcy petition for entrepreneurs who became insolvent during the state of epidemic threat or epidemic, and whose insolvency arose as a result of the COVID-19 epidemic, for the duration of the state of epidemic threat. Pursuant to this regulation, the 30-day deadline for filing a bankruptcy petition for an insolvent company did not commence, and if it had commenced, it was interrupted. In other words, the aforementioned regulation suspended the negative legal consequences resulting from management board members' failure to file a bankruptcy petition within the deadline. Thus, by introducing this regulation, the legislator, in a sense, permitted the company to continue operating during the period of insolvency.
A member of the company's management board is not liable for the company's debts if they demonstrate that they have not filed for bankruptcy in accordance with Article 15zzra of the COVID-19 Special Act. The premise that insolvency occurred during the period of the state of epidemic threat or epidemic is crucial here. The occurrence of a state of insolvency due to the COVID-19 pandemic should be understood as the company's permanent financial failure resulting from the negative effects of the SARS-CoV-2 virus.
The legal literature has adopted a broad and decisively favorable interpretation of the above regulation for company management boards. It is assumed that the impact of COVID-19 on the financial situation of companies is not limited solely to business matters related to the inability to conduct business/continue business as usual due to the introduced restrictions and limitations, but also to the social consequences of COVID-19 related to social isolation and the health situation of employees. If a state of insolvency arose during a state of epidemic threat or a state of epidemic declared due to COVID-19, it is presumed to have arisen due to COVID-19.
Failure to file a bankruptcy petition and abuse of law
As of May 16, 2022, the state of epidemic was replaced in Poland with a state of epidemic threat. The suspension of deadlines for filing bankruptcy petitions for entrepreneurs remains in effect until the state of epidemic threat is completely lifted . After the state of epidemic threat has ended, the protection provided for in Article 15zzra of the Special COVID-19 Act will cease to apply, and the previous 30-day deadline for fulfilling this obligation will be restored. It should be noted, however, that while the SARS-CoV-2 virus completely paralyzed economic life in Poland in the early months of the pandemic, it now appears that preparing a bankruptcy petition with the necessary attachments should not pose any significant difficulties. Currently, invoking Article 15zzra of the Special COVID-19 Act by a management board member held liable for the company's debts in the event of ineffective enforcement against its assets may seem contrary to the principles of social coexistence and the socio-economic purpose of this law. After the epidemic subsides, if the grounds for declaring bankruptcy materialize, company managers should seriously consider filing the petition, even if the protection provided for in Article 15zzra of the COVID-19 Special Act applies. Failure to file a bankruptcy petition within thirty days of the date on which the grounds for declaring bankruptcy arose in this situation may be treated as an abuse of law and deliberately acting to the detriment of the company and its creditors.
In summary, a company management board member held liable for damages for the company's obligations under Article 299 of the Commercial Companies Code may be released from this liability by demonstrating that the company's insolvency arose during the state of epidemic threat or epidemic, and that the deadline for filing a bankruptcy petition pursuant to Article 15 of the COVID-19 Special Act has not yet expired. However, it should be remembered that currently, in the event of a company's insolvency, if there are no objective grounds for not filing a bankruptcy petition, the management board member's failure to comply with this obligation may be treated as an abuse of law, and the court will assess the management board member's liability under Article 299 of the Commercial Companies Code on a case-by-case basis, taking into account the circumstances of the given case.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of May 25, 2022
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