Stricter executive liability for the company’s bankruptcy

Novinky

On 1 January 2021, a major amendment to the Business Corporations Act (the “BCA”) took effect which (inter alia) tightens the liability of members of the statutory bodies of business corporations in the event of the company’s insolvency.

In particular, it lays down an obligation to hand over remuneration from the agreement on performance of the function if the company becomes insolvent and the statutory body violates its obligation to file an insolvency petition (i.e. in the case of creditor insolvency petitions), including liability for the company’s obligations, i.e. liability for the company’s debts that cannot be repaid by the company itself.

If a member of the statutory body contributes to the company’s insolvency by violating his/her obligations and if the method of resolving the insolvency has been set in insolvency proceedings (i.e. bankruptcy has been declared or reorganisation has been approved), a decision can be made, based on the proposal of the insolvency administrator, on the following:

        i) the statutory body (typically the executive or member of the board of directors) is obliged to hand over everything they have received from the company as remuneration for the last two years before the commencement of the insolvency proceedings;

        and

        ii) the obligation to pay the amount up to the difference between the sum of debts and the value of the company’s assets if the company is declared bankrupt, this obligation of the member of the statutory body should reflect up on the extent to which such a representative of the company has contributed to the fact that the company’s assets are insufficient to repay its debts.

The insolvency administrator submits such a proposal, inter alia, if ordered to do so by the creditors’ committee.

Both of these obligations of the members of the statutory bodies will now be decided by the relevant insolvency court within “incident proceedings” under the Insolvency Act. The decision in such proceedings can also serve as a basis for the expulsion of the member of the statutory body from being able to accept another similar position for up to 3 years.

Due to the current legislation, it has become even more important for members of the statutory body (executives, members of the board of directors) to properly monitor the financial situation and solvency of the business corporation and to address them in a timely manner in case of unfavourable developments, otherwise they may be personally liable.