In one of our articles, we raised the issue of the liability of management board members related to the ineffective enforcement against the Company after the end of the COVID-19 epidemic.
In today's article, we would like to discuss the exclusion of management board member liability under Article 299 of the Commercial Companies Code for failure to file a bankruptcy petition despite the existence of a state of insolvency. According to this provision, if enforcement against the company proves ineffective, management board members are jointly and severally liable for its obligations. In this case, joint and several liability means that if the company is unable to satisfy the creditor, the management board member is liable with all of its assets (without any limitations).
The role of the management board of a limited liability company is to manage the company's affairs and represent it externally. Serving as a management board member also carries with it liability. A management board member is liable for any actions taken on behalf of the company during their term of office, if they held the position during a period in which the grounds for filing a bankruptcy petition were met.
For a management board member, given their role and professional nature, to feel completely secure, they should exercise due diligence and, immediately upon appointment, examine the company's financial condition by reviewing its existing financial documents. Performing the above-mentioned activities will allow them to determine the company's current situation and determine whether the company is experiencing temporary financial problems or is already insolvent.
At this point, it's worth recalling what the term "insolvency" means. It's a situation in which a company is unable to meet its current, due obligations, and this condition persists for at least three months. Insolvency is grounds for filing a bankruptcy petition.
Therefore, if the financial analysis indicates that the company is insolvent, the management board member is obligated to file a bankruptcy petition within 30 days. Insolvency occurs at the end of the third month in which the company was obligated to settle its current liabilities. Filing the petition within the prescribed deadline releases the management board member from liability for the company's obligations. This is, of course, one of several forms of excluding a management board member's liability, as § 2 of the aforementioned provision states that exemption from liability for the company's obligations is possible if:
- in due time, a member of the management board files a petition for bankruptcy or, at the same time, the court issues a decision on opening restructuring proceedings or on approving the arrangement in the proceedings on approval of the arrangement,
- a member of the management board proves that the failure to file a bankruptcy petition within 30 days of the occurrence of the grounds for doing so was not due to his fault; or
- despite the failure to file a bankruptcy petition and the failure to issue a decision on opening restructuring proceedings or the failure to approve the arrangement in the arrangement approval proceedings, the creditor did not suffer any damage, and
- enforcement is carried out by compulsory administration or by sale of the enterprise, pursuant to the provisions of the Code of Civil Procedure, if the obligation to file a bankruptcy petition arose during the enforcement.
In today's article, we focused mainly on the liability of a management board member in the event of failure to file a bankruptcy petition on time, but we will describe each option that a management board member can use to avoid liability under Article 299 of the Commercial Companies Code in the next articles in the #Compliance series.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of August 3, 2022.
authors:
