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Home » Case law: a selection of case law affecting the liability of members of statutory bodies

Case law: a selection of case law affecting the liability of members of statutory bodies

06. 29. 2020

Authors: Mgr. Irena Kolárová and Mgr. Jiří Ganger

The High Court of Olomouc in its decision 5 Cmo 15/2020 among other things commented on when a member of the statutory body should be held liable for their obligations to a business corporation upon a business corporation’s bankruptcy within the meaning of Section 68 of Act N. 90/2012 Coll., to regulate commercial companies and cooperatives (Business Corporations Act, hereinafter referred to as “BCA”), which regulates “punitive liability”, the aim of which is to compensate the creditors of a business corporation for deterioration in the recoverability of claims which was caused by the corporation’s bankruptcy or by a member (or former member) not exercising their office with due care, because the member failed to take all necessary and reasonably foreseeable steps to prevent the bankruptcy (even though he or she knew that the business corporation was facing an imminent threat of bankruptcy, or should and could have known it). The High Court confirmed that a member of the statutory body becomes liable (as per Section 68 BCA) only after the court’s decision comes into force which holds that the member of the statutory body is liable for the obligations of a company. A creditor, who is not obliged to prove that his or her legal interest is strong, for it is implied by law, is also authorized to bring an action for the liability of a member of the statutory body. Thus, the creditor is authorized to bring the claim independently and can then in other independent proceedings use this decision to demand from the statutory body that it fulfil its obligations towards the company. Both actions can be brought alone in separate proceedings.

The Supreme Court of the Czech Republic commented on the situation regarding punitive liability as per Section 68 BCA in its recent decision (27 Cdo 1319/2018) by adding that if the existence of a legal entity is terminated due to a lack of assets when the creditor’s receivables are partly or completely unsatisfied, the court may establish the liability of a member of the statutory body by referring to Section 2026 Art. 2 of Act N. 89/2012 Coll., the Civil Code, even in spite of Section 311 of Act N. 182/2006 Coll., regulating bankruptcy and related procedures (the Insolvency Act), which states that unsettled receivables or parts of them expire if they are not discharged from insurance, in which case bankruptcy is liquidated and the legal entity is terminated. The Supreme Court has found a gap between Section 311 of the Insolvency Act and punitive liability as per Section 68 BCA, which needs to be covered by interpretation, despite the contrary conclusion that is advocated in professional literature. Thus, punitive liability can arise even after a business corporation is itself terminated.

The Supreme Court of the Czech Republic in its decision 29 Cdo 4961/2017 dealt with the issue of liability of a member of the statutory body arising if an insolvency petition is not duly filed. The Court there concluded that the key aspect for liability is firstly whether there is a causal link between the failure to fulfil the obligation to file the insolvency petition regarding the company’s assets in time and the damage caused by the company, and secondly whether the breach of this obligation had any influence on establishing the sum needed to discharge debts in insolvency proceedings. It is important to distinguish whether the debt to a creditor arose before a person in authority delayed the filing of an insolvency petition as per Section 98 of the Insolvency Act, or if it arose later in the period when the person was already late in fulfilling the obligation to file an insolvency petition on behalf of the debtor. If a debt arose before the delay by the person in authority, the factor that is decisive in evaluating the effect of the delay on paying the creditor is whether the debtor’s assets changed between the moment the obligation to file an insolvency petition arose and the moment the petition was filed (regardless of whether the assets have declined or the debt has increased). Creditors are only protected from the situation where the person in authority acts illegally in order to reduce the sum that is to be paid to the creditor in case of bankruptcy. Still, there may be other situations in which a debt to the creditor arises only after the person in authority has already delayed in fulfilling its obligation to file an insolvency petition and if the authorized person had fulfilled the obligation and the insolvency proceedings had been initiated, the debt would not have arisen (the creditor would not have had to deal with the debtor). It is unacceptable that an authorized person (a member of the statutory body) receive a payment from a creditor without intending to repay it. Consequently, all the circumstances of the case should be evaluated when considering liability for a delay in filing the insolvency petition, and liability may not arise in every case.

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