Sanctions for failure to file a bankruptcy petition by a member of the management board of a limited liability company
Many people are board members in limited liability companies. However, not everyone is aware of their obligation to file for bankruptcy. Even if members of the management board know when to file a bankruptcy petition, they are often not aware of all possible legal consequences related to its failure to file or its late submission. The regulations concerning the conditions for submitting a petition for bankruptcy and the possible consequences of failure to file a petition for bankruptcy arise from various normative acts.
Bankruptcy petition
Each member of the management board of a limited liability company is obliged to file a bankruptcy petition within 30 days from the date of establishing the condition for its bankruptcy (Article 21 (1) and (2) of the BRL). The premise for submitting such an application is the insolvency of the company, i.e. the loss of its ability to meet its due pecuniary obligations (Article 11 (1) of the BRL). A company is also insolvent in a situation where its financial liabilities exceed the value of its assets for a period of more than 24 months (Article 11 (2) of the BRL). Moreover, it is presumed that the company is insolvent when it is delayed in the performance of its financial obligations by more than 3 months (Art. 11 (1a) of the BRL).
A member of the management board of a limited liability company, in order not to be held liable, should, as a rule, file a bankruptcy petition within the statutory deadline or prove that a restructuring procedure was opened against the company or that an arrangement concluded by the company was approved in the arrangement approval procedure ( Article 21 (3) pu). However, what if the application was submitted late, or worse, the members of the management board of the limited liability company did not submit it at all?
Sanctions under the Bankruptcy Law
A member of the management board of a limited liability company, by submitting a petition for declaring bankruptcy of the company after the deadline or not submitting such petition at all, exposes himself to liability for damages to creditors (Art. 21 (3) of the BRL). Creditors will be able to seek compensation from such a management board member for the damage they have suffered as a result of their failure to file a bankruptcy petition within the statutory deadline. This means that, as a rule, creditors will be able to satisfy their claims from the personal property of a management board member up to the amount of unpaid receivables against a limited liability company (Article 21 (3a) of the BRL).
Liability for damages is not the only possible sanction for a member of the management board of a limited liability company under the provisions of the Bankruptcy Law. Creditors may file an application for a ruling by a bankruptcy court to prohibit a management board member from running a business for a period from 1 to 10 years (Article 373 (1) (1) of the BRL). This prohibition does not only apply to performing the function of a management board member in a limited liability company, but also to running a business on one’s own account or as part of a civil partnership, and to acting as a succession administrator, member of the supervisory board, member of the audit committee, representative or proxy of a natural person running a business. in the scope of this activity, a commercial company, state-owned enterprise, cooperative, foundation or association. After a legally valid ban on conducting business activity, a member of the management board is removed from the register of entrepreneurs kept by the National Court Register with regard to all entities where he performed the functions covered by the ban. Continuing to perform his function by a management board member, despite the ban on conducting business activity, exposes the management board member to criminal liability (Article 244 of the Penal Code).
Sanctions resulting from the Code of Commercial Companies
Another sanction for failure to file a bankruptcy petition by a member of the management board of a limited liability company is the possibility for the court to transfer liability for the company’s liability to a member of the management board (Article 299 § 1 and 2 of the Code of Commercial Companies and Partnerships). If the creditor demonstrates that his enforcement against a limited liability company is ineffective and a management board member fails to demonstrate that he has filed a bankruptcy petition for that company in due time, the management board member will be responsible for the resulting liability jointly and severally with the company. The creditor will therefore be able to satisfy himself from the personal property of a member of the management board of a limited liability company.
Failure to file a bankruptcy petition for a limited liability company, despite the existence of conditions justifying its filing, is also subject to criminal liability (Article 586 of the Code of Commercial Companies and Partnerships). A member of the management board of a limited liability company who does not comply with the above-mentioned the obligation is punishable by a fine, restriction of liberty or imprisonment for up to one year.
Sanctions resulting from the Tax Ordinance and the Act on the social insurance system
The regulation contained in the provisions of the Bankruptcy Law and the Code of Commercial Companies does not exhaust all possible sanctions for failure to file a bankruptcy petition by a member of the company’s management board. A management board member is also responsible for the tax obligations of a limited liability company if enforcement against the company’s assets has proved ineffective in whole or in part, and the management board member fails to prove that he filed a petition for bankruptcy of the company in a timely manner (Art.116 of the Tax Act). In this case, the member of the management board is liable for the liabilities of the limited liability company also with all his assets. The above regulation is applied accordingly to the arrears in respect of social security contributions (Art. 31 u.s.u.s.).
