Polish law lays down several independent grounds for liability of company representatives for debts of the entities under their control. This applies in particular to board members in limited liability and joint-stock companies. What is this liability and how can one ward it off?
Under the new Bankruptcy Law, the possibility to sue board members (and other representatives) for their company’s debts is governed first and foremost by Article 21 (2) of the Bankruptcy Law. All representatives are jointly and severally liable for debts incurred by their companies for damages resulting from non-filing of a bankruptcy petition or a request for institution of restructuring proceedings in due time. This time limit is 1 month from the occurrence of the state of insolvency. Notably, indemnity is granted by the very fact of filing a bankruptcy petition within this time limit, whereas in the case of an application for institution of restructuring proceedings, representatives are released from liability only if the court institutes restructuring proceedings within one month of the occurrence of a state of insolvency, which means that there is very little time.
The other main basis for liability, in this case especially for board members of limited liability companies, is Article 299 of the Code of Commercial Companies. In such a case board members should be able to discharge themselves of liability for their company’s debts by way of proving (1) that they filed a bankruptcy petition on time (or that a decision to institute restructuring proceedings was issued within the same time limit), or (2) that the failure to file the petition on time was not due to their fault, or (3) that the creditor has not suffered any damage as a result of their failure to file the petition on time.
Additional grounds for liability for company’s debts, this time only in the case of public receivables (taxes, social insurance premiums, etc.) are laid down in Article 116 of the General Tax Code. Protection against this type of liability can be ensured by proving (1) that a bankruptcy petition was filed within the prescribed time limit, or (2) that one failed to file the petition for reasons beyond their control, or (3) by identifying Company’s assets against which a significant part of the creditor’s receivables can be enforced.
Another risks is criminal liability for actions such as failure to file a bankruptcy petition within the time limit (Article 596 of the Code of Commercial Companies), selective satisfaction of creditors when threatened by insolvency (Article 302 of the Penal Code), acting to the detriment of creditors (Articles 300 and 301 of the Penal Code), and penal fiscal liability for persistent late or non-payment of tax dues (Article 57 of the Fiscal Penal Code).
It is evident now that the fact of holding the position of company representative entails considerable risks in the event of the enterprise becoming insolvent. It is essential to keep eye on the condition of one’s company and due security of the Management Board so that no potential problems of the company lead to private problems for its representatives. This can be achieved through well-balanced organisational structure of a company and regular assessment of its standing. Prompt reaction and support of specialised lawyers often prove to be the only barrier separating temporary troubles from a complete disaster.
✓ For many years we have helped protect private assets of members of management boards and other representatives of companies by implementing adequate measures provided by the bankruptcy and restructuring law.
✓ We advise companies on how to regain solvency and teach them to pay attention to certain signs of upcoming troubles. We assess your company’s standing and prepare safeguards in case of bankruptcy or restructuring.
✓ We defend board members from liability for obligations incurred by the entities under their management, also as part of multifaceted strategies for capital groups.
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