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Liability of board members for the financial obligations of a joint-stock company

It is common knowledge that members of the board of directors of a limited liability company, in the event of ineffective enforcement against the company, are jointly and severally liable for the financial obligations of the company. The basis for liability is Article 299 § 1 of the Commercial Companies Code (hereinafter: “CCC”). The situation of members of the board of management of a simple joint-stock company is similar. Pursuant to Article 300132 § 1 of the CCC, if enforcement against a simple joint-stock company proves ineffective, the members of the board of directors are jointly and severally liable for its financial obligations. However, with regard to the members of the board of management of a joint-stock company, there is no such regulation. Does this mean that they can feel safe, and creditors who have not enforced anything against the company must accept the loss?

Obligation to file a bankruptcy application

Pursuant to Article 21(1) of the Act of February 28, 2003. Bankruptcy Law (hereinafter: “Bankruptcy Law”), the debtor is obliged, no later than thirty days from the date on which the basis for bankruptcy occurred, to file a bankruptcy application with the court. If the debtor is a legal entity (e.g., a joint-stock company, a foundation) or another organizational unit without legal personality, this obligation is incumbent on anyone who, under the law, the articles of association or the company’s articles of association, has the right to manage the debtor’s affairs and to represent it, either alone or jointly with other persons. In the case of a joint-stock company, these are the members of the board of management.

The basis for declaring bankruptcy is the insolvency of the debtor (joint-stock company). A debtor is insolvent if it has lost the ability to perform its due financial obligations. The Bankruptcy Law, in order to simplify the assessment of the insolvency of the debtor joint-stock company, introduces two presumptions:

  • According to the first, the debtor is presumed to have lost the ability to perform its due financial obligations if the delay in the performance of financial obligations exceeds three months;
  • According to the second, a debtor that is a legal entity (e.g., a joint-stock company) or an unincorporated organizational unit is also insolvent if its financial obligations exceed the value of its assets, and this condition persists for a period exceeding twenty-four months.

Liability of board members of a joint-stock company

According to Article 21 (3) of the Bankruptcy Law, persons who are obliged to file a bankruptcy application on behalf of the debtor joint-stock company are liable for damage caused by failure to file the application within the statutory deadline, unless they are not guilty.

Management board member liability is based on the principle of guilt, with the above-mentioned provision introducing a kind of presumption of management board member guilt. A member of the management board may free himself from liability by showing that he is not at fault for the creditor’s damage. However, the burden is on the debtor to prove the absence of guilt.

The second prerequisite for holding a management board member liable is the creditor’s damage suffered as a result of the failure to file a bankruptcy application for a joint-stock company on time.

What is the damage to a creditor who has not been paid by the joint-stock company? In this case, the damage is presumed to include the amount of this creditor’s unsatisfied claim against the debtor, i.e. the exact amount that is due to the creditor, but failed to enforce it against the debtor – the joint-stock company. In the event that the creditor obtained only part of his money from the joint-stock company, the damage will be the remaining unpaid portion.

The last prerequisite is the causal link between the behavior of the members of the board of management in failing to fulfill their obligation to file a bankruptcy application within the prescribed period and the damage caused to the creditor. Accordingly, the creditor must prove that the wrongful act of the board members led to the creditor’s damage. This, however, is not so difficult, since the essence of bankruptcy proceedings boils down to the satisfaction (at least in part) of the creditors of an insolvent debtor. Given the presumption of the amount of damage and the absence of a bankruptcy application by the debtor, the connection seems obvious.

Summary

Proceedings against a member of the board of management under Article 21(3) of the Bankruptcy Law are certainly not the easiest. It can be particularly difficult to prove the circumstances that the debtor or his representatives were obliged to file a bankruptcy application (due to the debtor’s insolvency) or to show that the bankruptcy application was filed in violation of the statutory deadline. However, if money is at stake that cannot be recovered in any other way, such proceedings may be the only way for a creditor to at least partially satisfy himself.

Authors

Maciej Marzec

Trainee Attorney at Law, Certified ATS Advisor

Maciej Marzec

Jarosław Rudy

Managing Partner, Attorney at Law, Certified ATS Adviser

Jarosław Rudy

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