The fundamental duty of a member of the statutory body of a legal entity is to act with due care and diligence. This duty is reflected, in particular, in the obligation to act carefully, with the necessary loyalty and knowledge. The obligation to file an insolvency petition without undue delay when a legal entity becomes insolvent is one of the fundamental manifestations of the duty to act with due care. This applies where the company has multiple creditors and is unable to meet its due and payable obligations, or where its liabilities exceed the value of its assets. The purpose of this legal framework is to protect creditors and ensure timely action while the company still has assets available. If a statutory body breaches this obligation and fails to file an insolvency petition, it may be liable to creditors for the damage they suffer as a result of such inaction.
The liability of a company's management in a situation where the company ceases to exist without proper insolvency proceedings was considered by the Supreme Court of the Czech Republic. In the case in question, the claimant sought damages of approximately CZK 130,000 from the former directors of a company that owed him money for electricity supplies. The debt had been judicially established, but the company had meanwhile entered liquidation. The liquidator subsequently found that the company had no assets, meaning that insolvency proceedings could not even be commenced. The company was subsequently deleted from the Commercial Register.
The court of first instance dismissed the claim, considering it time-barred and finding that it had not been proven that the director had been aware of the company's insolvency. The Prague High Court subsequently upheld the decision, albeit on different grounds. It relied on the wording of the Insolvency Act, under which damage caused by the failure to file an insolvency petition is generally determined as the difference between the amount of the claim established in insolvency proceedings and the amount actually received by the creditor in those proceedings. The appellate court therefore concluded that, where no insolvency proceedings had taken place and the company's insolvency had not been formally established, the conditions for a damages claim against the director had not been met.
The Supreme Court, however, rejected this approach and overturned the decisions of the lower courts. It held that the possibility of claiming damages from a director cannot automatically be made conditional upon insolvency proceedings having taken place. If a creditor objectively had no opportunity to lodge its claim in insolvency proceedings because the directors failed to file an insolvency petition even though they were required to do so, and the company subsequently entered liquidation and was deleted from the Commercial Register, the requirement that insolvency proceedings must have taken place cannot be applied. A contrary interpretation would lead to a situation in which directors who, through their inaction, deprive the company of all its assets could effectively eliminate their personal liability through that very conduct.
What should be taken away from this?
Even where an indebted company ceases to exist and is deleted from the Commercial Register without prior insolvency proceedings, the personal liability of a member of the statutory body towards creditors cannot automatically be excluded. The fact that the company no longer legally exists does not relieve its statutory bodies of the obligation to compensate for the damage caused. The decision therefore significantly strengthens the position of creditors. At the same time, it serves as a clear warning to statutory bodies. Ignoring a company's financial difficulties and failing to file an insolvency petition in a timely manner may result in personal liability, even if the company subsequently undergoes liquidation and is deleted from the Commercial Register without insolvency proceedings being commenced.
