In one of the last articles in our Compliance series, we addressed the issue of management board members' exemption from liability by successfully filing a bankruptcy petition in a timely manner. In today's post, we will discuss the issue of management board members' lack of fault in failing to file a bankruptcy petition.
The nature of a management board member's responsibility
A management board member's liability is based on fault. Demonstrating that a management board member failed to file a bankruptcy petition through their own fault releases them from personal liability for the company's obligations. However, given the professional nature of the role a management board member performs, it should be noted that not every argument will constitute an effective defense against their personal liability. First, a management board member seeking to exonerate themselves in this manner should remember that they cannot rely solely on a subjective opinion that, in their opinion, filing a bankruptcy petition was unnecessary, or that they were aware of the company's poor financial condition but hoped that this situation would change in the near future. Arguments based on the fact that the management board consisted of multiple members and that the management board member's duties were not necessarily related to the company's financial affairs, meaning they were unable to verify or examine its financial condition, will be deemed invalid by the court. Moreover, a management board member's excuse of ignorance of the law does not exempt them from personal liability for the company's obligations if, during their term, grounds for filing a bankruptcy petition arose. As a professional entity authorized to manage the company's affairs, the company's representative is obligated to constantly monitor its financial situation, for example by reviewing financial documents, as discussed in previous articles.
No fault of the management board member in failing to file a bankruptcy petition
Current practice has shown that demonstrating in court proceedings the absence of fault of a management board member in a situation where they failed to file a bankruptcy petition is not easy. Nevertheless, there are exceptional circumstances that may allow for release from personal liability for the company's obligations. First, a management board member may argue the failure to file a bankruptcy petition in a timely manner if they lacked access to the company's accounting records, including hindered access to monitoring the company's obligations to creditors. This may result, for example, from a conflict within the company between management board members who unlawfully prevent one of them from accessing the company's financial records. The doctrine indicates that a management board member's absence of fault may occur when they are separated from information concerning the company (particularly information regarding the company's finances), if the management board member took steps to obtain such information (A. Rachwał, in: SPH, vol. 2A, 2007, p. 1037 ). In a situation where a management board member has repeatedly attempted to obtain information about the financial condition of the company, the above conduct may be positively assessed by the Court, which will result in a finding of innocence of the management board member.
Practice also shows that a management board member can be deemed not to be at fault when the member is in fact unable to perform their duties for a specified period due to a serious illness. Alternatively, a management board member may effectively argue that they failed to file for bankruptcy through their own fault because they were misled by other management board members who concealed important information regarding the company's financial condition.
In conclusion, demonstrating a management board member's innocence in failing to file a bankruptcy petition is extremely difficult, and practice indicates that such circumstances should be exceptional. We continue to encourage management board members to constantly monitor their financial situation and condition in order to file a bankruptcy petition at the appropriate time and relieve themselves of personal liability for the company's obligations.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of August 31, 2022.
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