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Consequences of failure to file for bankruptcy.

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Consequences of failure to file for bankruptcy.

In the face of the coronavirus pandemic and the ever more far-reaching restrictions and bans implemented on an ongoing basis, it is expected that the number of submitted restructuring and bankruptcy applications will increase dramatically. 

If a state of insolvency occurs, a given entity is obliged to submit a bankruptcy petition no later than within 30 days from the date on which the basis for the declaration of insolvency occurred. In the case of legal persons or other organizational units without legal personality to which a separate act grants legal capacity, the obligation to submit a relevant application lies with anyone who, under the act, articles of association or statutes, has the right to manage the debtor's affairs and to represent him, alone or together with other persons, in the case of limited liability companies or joint-stock companies, therefore, the members of the management board.

What responsibility lies with the members of the management board in the event of failure to file for bankruptcy on time? Explains Izabela Janiszewska, Legal Advisor, Senior Associate JP Weber.

Compensation obligation under the Bankruptcy Law

Management Board members are liable for damage caused by failure to file a bankruptcy petition on time, it being presumed that the damage includes the value of the outstanding debt to the creditor. Management Board members may release themselves from liability if they prove that they are not at fault for not submitting it on time or that restructuring proceedings have been opened or an arrangement has been approved in the proceedings for approval of the arrangement within the deadline for submitting a petition for bankruptcy. 

Liability in case of unsuccessful enforcement against the company on KSH grounds

Under Article 299 of the KSH, if enforcement against the company proves unsuccessful, the members of the board are jointly and severally liable for its obligations. The condition for the creditor to initiate enforcement from a board member's assets is that the creditor is unable to satisfy himself from the company's assets. A board member may release himself or herself from the liability referred to in § 1 if he or she proves that a petition for the declaration of bankruptcy was filed in due time or a decision on the opening of restructuring proceedings or on the approval of an arrangement in the proceedings for the approval of an arrangement was issued at the same time, or that the failure to file a petition for the declaration of bankruptcy was not due to his or her fault, or that despite the failure to file a petition for the declaration of bankruptcy and the failure to issue a decision on the opening of restructuring proceedings or on the approval of an arrangement in the proceedings, the creditor has not suffered any damage. 

Liability for tax arrears

The Tax Ordinance also provides for joint responsibility of management board members with all their assets for tax arrears of a limited liability company, a limited liability company in organization, a joint-stock company or a joint-stock company in organization, if the execution from the company's assets proved ineffective in whole or in part. A given member of the management board shall be liable only for those tax liabilities whose payment deadline expired during the period when he was a member of the management board of that company. The Tax Ordinance provides for a catalogue of circumstances entitling management board members to relieve themselves of such liability. 

Criminal liability of management board members provided for in the KSH

According to art. 586 of the KSH, whoever, being a member of the company's management board or a liquidator, does not file for bankruptcy of a commercial company despite creating conditions justifying the company's bankruptcy according to the regulations, is subject to a fine, penalty of restriction of liberty or imprisonment for up to one year. Apart from members of management boards of capital companies, liquidators of commercial companies are also subject to this liability. 

Deprivation of the right to conduct business activity

Subsequently, the Court may order the members of the management board who, due to their fault, have not filed a bankruptcy petition within the statutory period, to be deprived of the right to conduct business activity on their own account or within a civil partnership for a period of between one and ten years and to act as a member of the supervisory board, member of the audit committee, representative or attorney of a phisical person conducting business activity within the scope of this activity, a commercial company, state enterprise, cooperative, foundation or association. The repercussions of the above mentioned prohibition are obligatory entry in the Register of Insolvent Debtors, maintained within the National Court Register. 

Negative impact on a possible consumer bankruptcy of a board member

The last of the discussed consequences of failure to file a bankruptcy petition by a board member within the deadline may turn out to be the dismissal of the consumer bankruptcy petition of a given board member. The court, pursuant to Art. 491, item 4, section 2 of the PrUpad, dismisses a bankruptcy petition if within ten years prior to the date of filing the petition (...) the debtor, having such an obligation, has not filed a petition for the declaration of bankruptcy within the deadline, contrary to the provisions of the Act (...) - unless the conduct of the proceedings is justified for reasons of equity or humanitarian reasons. Bearing in mind the consequences described above, in the current situation, it is extremely important that members of the management board monitor on an ongoing basis the financial situation of the companies they manage in terms of their insolvency. In the event of a state of insolvency, it is the responsibility of the members of the management board to submit a motion to declare the company insolvent on time.

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JP Weber

Tomasz Sadurski

Tomasz Sadurski

Partner,
Attorney at law,
Restructuring Advisor

Izabela Janiszewska

Izabela Janiszewska

Senior Associate. Attorney at Law

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