Updated: 19.11.2024
If you have been unsuccessful in enforcing your money from a debtor company, then Article 299 of the Commercial Companies Code, which establishes the liability of board members for the company’s liabilities, comes to your aid.
Members of the management board of a limited liability company are liable for unlawful, culpable failure to file a bankruptcy petition or a petition to open restructuring proceedings.
What are the presumptions for management board members’ liability?
According to the law and the doctrine of commercial law, board members are liable if the following presumptions are present:
- According to the law, there must be damage. However, it does not have to mean direct damage to the creditor’s assets. It is sufficient that the assets of the limited liability company are reduced to such an extent that the creditor cannot satisfy the company’s assets.
- Prior ineffectiveness of enforcement against the company’s assets. It is worth emphasizing that execution does not have to be carried out from every part of the assets, if the circumstances of the case show that the company has no assets. This should be understood in the sense that there is no need to direct enforcement to those assets from which it is impossible to obtain the claimed compensation.
In most cases, in order to determine the ineffectiveness of enforcement, it will be necessary to obtain a decision of a court bailiff to discontinue enforcement proceedings against the company. However, prior enforcement is not required if it is clear from the facts and circumstances that the company has no assets from which to satisfy the creditor and pay the company’s obligations. However, it should be remembered that this is relative and derivative of the specific circumstances. - Causal relationship between the damage and the failure to file for bankruptcy. It is very important that the plaintiff is not required to prove a causal link between the damage suffered and the failure of the defendant member of the company’s board of directors to file for bankruptcy. In a lawsuit under Article 299 of the Commercial Companies Code, there is a presumption that this causal link exists, and it is in the interest of the defendant board member to submit counter-arguments.
Who is entitled to bring an action?
An action under Article 299 of the Commercial Companies Code against the members of the board of directors of the debtor company can be brought by anyone who has failed to obtain a claim in enforcement proceedings conducted from the company’s assets.
Evidence in court proceedings
Most often, as evidence of ineffectiveness of enforcement, a decision to discontinue enforcement proceedings conducted against a limited liability company is submitted.
In addition, possible means of evidence include:
- Business books – can be excellent evidence of the absence of any assets of the company, which proves the ineffectiveness of the execution that was conducted from its assets.
- Balance sheet of the company – The balance sheet of a limited liability company shows that the company has no assets from which a creditor could claim satisfaction of his claim. However, it should be remembered that the balance sheet is only a presumption that the person who signed it confirms the information it contains. If a creditor wants to challenge the veracity of the company’s balance sheet, he should prove it before the court, as the burden of proof in this case is on the creditor.
- The final plan for the distribution of sums of money in enforcement proceedings.
- Testimony of witnesses or questioning of parties.
What are the prerequisites for exoneration?
A member of the board of directors can free himself from liability if he proves that the declaration of bankruptcy was timely , i.e. an appropriate application was filed. In this case, it doesn’t matter which member of a multi-member board of directors filed such a motion. What matters here is the mere fact of filing a bankruptcy petition.
Another condition that excludes liability is that the board member proves that the failure to file a bankruptcy petition was through no fault of this particular board member. On the other hand, this does not exclude the liability of the other members of the company’s directors if there is a multi-member board.
In addition, the absence of any damage to the creditor’s assets completely excludes the liability of all board members.
How to calculate the costs of the proceedings?
Based on Article 13 of the Law on Court Costs in Civil Cases, the fee for a lawsuit is 5% of the value of the dispute, but it cannot exceed PLN 200,000.
Deadline for initiating proceedings
The time limit for filing a lawsuit under Article 299 of the Commercial Companies Code is 3 years from the moment the aggrieved party learns about the damage and the person obliged to repair it. Directing a lawsuit against a member of the board of directors is, in most cases, preceded by prior litigation and enforcement proceedings against the company itself.
Pursuing a claim against members of the board of directors without an enforcement order against the company
The liability of members of a company’s management board for its obligations is subsidiary to the company. This means that, as a rule, ineffective enforcement proceedings against the company’s assets must be carried out first. Only if the company is found to be insolvent can claims be directed against the members of the board of directors. However, is this always necessary?
The jurisprudence of the Supreme Court allows for the possibility of conducting enforcement proceedings against the assets of board members in particularly exceptional situations. One such situation is when the company has ceased to exist. Then, due to the deficiency of the company’s assets, it becomes logical to directly direct claims for payment of debts against members of the board of directors.
What is the criminal liability of board members for causing damage to the company?
Serving as a member of the board of directors of a company is a great honor, but also a great responsibility. Management board members may be subject to criminal liability for failing to fulfill their duties or not fulfilling them properly.
Causing financial damage to the company
Article 296 of the Criminal Code sanctions crimes that involve management board members causing significant property damage to the Company. Such unlawful action is punishable by three months to five years’ imprisonment.
It is worth mentioning, however, that the Company does not have to suffer damage for a board member to be liable, as Article 296 § 1a of the Criminal Code provides for a penalty of up to three years ‘ imprisonment if the Company’s manager brings an imminent danger of significant property damage to the Company – this type of crime can be called mismanagement, as a result of which no damage has occurred.
Significant property damage within the meaning of the Poland Criminal Law is damage to the company’s property, the value of which at the time of committing the criminal act exceeds PLN 1,000,000.
Who can initiate criminal proceedings if a member of the management board has brought an immediate danger of significant property damage?
From a procedural point of view, the catalog of eligible entities is open. Until recently, only the Company itself, including its board member, could file a notice. Today, the catalog is much broader, and the prosecution of a crime can be carried out at the request of an injured party (the Company), a shareholder or a shareholder.
Voluntary reparation of damages
Management board members can avoid criminal liability if they voluntarily repaired the damage caused in full before criminal prosecution. In this case, it will be necessary to conduct appropriate negotiations and mediation between the parties, which certainly requires the support of qualified lawyers.
FAQ – liability of board members
Does there have to be an unsuccessful execution of the company’s assets in order for me to pursue my claim against the members of the board of directors?
It is not necessary to have prior enforcement against the company if it is clear from the specific facts that the company is insolvent and has no assets from which it can satisfy the creditor. However, this is quite a contentious issue in the doctrine itself, so there is no single answer to this question and requires an analysis of the specific situation.
When can company directors be held personally liable for company debts and what protects creditor interests?
Generally speaking, directors become personally liable when their company is insolvent and they failed to file for insolvency proceedings in time. The law protects creditor interests by allowing them to pursue director’s personal assets if the company’s debts cannot be recovered through normal channels.
Under what circumstances are directors of limited liability companies generally shielded from personal liability?
Directors are generally shielded from personal liability when they:
- Act with reasonable care and in good faith
- Make business decisions in the best interests of the company
- File for insolvency when there is no reasonable prospect of avoiding insolvent liquidation
- Fulfill their fiduciary duty to shareholders and creditors
What makes directors and officers personally liable for outstanding debts, and what are the consequences?
Directors can be held personally liable if they:
- Engage in wrongful trading after knowing the company is insolvent,
- Failed to file for the company’s bankruptcy in a timely manner,
- Make preferential payments to one creditor over other creditors,
- Breach their duty to creditors when the company is insolvent,
- Engage in fraudulent activity.
Consequences may include a court order, disqualification order, or prison sentence if found guilty.
How can directors protect themselves from personal liability for business debts?
Directors can protect themselves by:
- Taking reasonable care in their duties,
- Acting in the best interest of both company and creditors,
- Getting directors and officers liability insurance,
- Avoiding personal guarantees for company debts,
- Seeking further advice before continuing trading when insolvency threatens,
- Ensuring employees and other officers act properly.
What key duties must directors fulfill to avoid breach of directors liabilities when their limited company becomes insolvent company, and how does wrongful trading affect personal liability?
Under the insolvency act, company directors have a duty to cease trading and act in good faith when they know the company is insolvent. Directors can be held personally liable and breach the corporate veil if they:
- Continue business operations when unable to pay debts,
- Make antecedent transactions that defraud creditors,
- Fail to protect creditor interests,
- Don’t act as a prudent person would in managing company debts,
- Breach their responsibilities to shareholders and employees.
The director must also ensure all officers are acting properly to avoid personal guarantee obligations for money owed at market value.
