At this time of global crisis, many companies operating in Poland may suffer losses. Such conditions also generate certain risks for members of management boards. Polish law stipulates, in general, that capital companies (limited-liability companies and joint-stock companies) are fully liable for their liabilities up to the value of all their assets. However, members of management boards must be aware that there are certain cases in which they may be held liable up to the value of all their assets for the company's liabilities. It is worth knowing the most important provisions that specify when management board members are liable for a capital company's liabilities and how they can protect themselves.
Liability of board members
Registration of share capital or its increase
The liability of members of management boards arises when a company is registered. Hence, members of the management board are liable to the creditors of the company jointly and severally with the company if they have provided the registration court with false data on the value of contributions actually paid towards the share capital by shareholders or on an increase of the share capital, wilfully or out of negligence. Such liability lasts for three years from the date of registration of the company or the increase in the share capital (paragraph 291 of the Polish Commercial Companies Code or CCC). In any case, a claim for compensation shall be subject to limitation after 10 years.
This liability applies to all obligations of a company in respect of its creditors. It should be stressed that providing false data in the registration court application is enough for the liability to arise. A company does not have to suffer any losses due to that fact. Moreover, the liability is not limited to the amount resulting from the difference between the value of contributions declared and actually paid.
A breach of the law or the articles of association
Furthermore, a member of the management board is liable to a company for a loss caused by acts or omissions in breach of the law or the provisions of the articles of association, unless they are not at fault (paragraph 293 of the CCC). The claim for compensation of loss is subject to limitation after three years from the date on which a company learnt of the loss and of the liable person. In any case, the claim is barred by limitation after 10 years from the date of the event that caused the loss (paragraph 297 of the CCC).
Shareholder's statement of claim
If a company does not bring an action for compensation for a loss within one year of the date of discovering the act causing the loss, each shareholder may file a statement of claim for compensation of loss caused to a company (paragraph 295 of the CCC). Provided an action is brought by a shareholder under the above conditions and in the event of bankruptcy of a company, the persons liable to compensate the loss may not invoke a resolution of the shareholders on an approval of the performance of their duties or a waiver by a company of claims for the loss. Obviously, this also applies to members of the management board.
Finally, members of the management board are jointly and severally liable for a company's liabilities if enforcement against the company proves to be ineffective. In such a case, members of the management board may release themselves from the liability if they demonstrate that:
- a bankruptcy petition was filed or that composition proceedings were commenced at the appropriate time;
- that it is not their fault that the bankruptcy petition was not filed or that composition proceedings were not commenced; or
- that the creditor did not sustain any loss despite the fact that the bankruptcy petition was not filed or that composition proceedings were not commenced.
However, the above stipulations do not prejudice the provisions establishing further liability of members of the management board (paragraph 299 of the CCC).
These stipulations significantly refer to ineffective enforcement. However, it is sufficient that there are no doubts that the initiation of enforcement against the company is useless, due to a lack of assets or because all the assets have already been encumbered by enforcement title or seized for the benefit of creditors or third parties. The liability regards all the liabilities of a company, regardless of their nature (for example, civil law obligations, labour law obligations or tax obligations) and is not limited to an amount. It is also independent of the fault of an individual member of the management board.
It should be stressed that according to Polish jurisprudence members of the management board may not be released from their liability, particularly when they have only been formally entered in the register as members of the management board and in fact have not performed any activities at all or have authorised other persons to act on their behalf.
To sum up, it is a special kind of liability, supplementary to the general liability for loss by a management board's members, that arises when the bankruptcy petition is filed late or is not filed at all. Nowadays, the provisions establishing this liability are widely applied by creditors when enforcing their claims against companies. Therefore, it is crucial that a bankruptcy petition is duly prepared and filed punctually, provided that the necessary conditions for such filing have arisen.
Definition of bankruptcy
The rules for declaring bankruptcy in Poland are stipulated in the Law on Bankruptcy and Reorganisation of February 28 2003 (LBR). According to paragraph 10 of the LBR, bankruptcy is declared with respect to a debtor who has become insolvent. A debtor is insolvent if he fails to perform his due obligations (paragraph 11 of the LBR). A debtor that is a limited-liability company will be deemed to be insolvent when the sum of its liabilities exceeds the value of his assets, even if the debtor duly performs these obligations.
A bankruptcy petition may be filed by a debtor, any of his creditors or:
- against a registered partnership, professional partnership, limited partnership or limited joint-stock partnership, by any of the partners with unlimited liability for the liabilities of the partnership;
- against legal persons and unincorporated organisational units possessing legal capacity by a separate law, by any person authorised to represent them solely or jointly with other persons;
- against a state enterprise, additionally by the founding body;
- against a single-member company of the State Treasury, additionally by the appropriate minister for the State Treasury;
- against a legal person, registered partnership, professional partnership, limited partnership or limited joint-stock partnership, in liquidation, by any of the liquidators;
- against a legal person registered in the National Court Register, by a curator established for that legal person; or
- against a debtor who has been granted public aid exceeding 100,000 ($130,000), by the authority granting aid (paragraph 20 of the LBR).
Deadline by which to file the petition
A debtor is obliged to file a bankruptcy petition with the competent court no later than within two weeks of the date on which the basis for declaring bankruptcy occurred (paragraph 21 of the LBR). Members of a management board are obliged to file a bankruptcy petition punctually on behalf of a debtor that is a limited-liability company.
The court may dismiss the bankruptcy petition when the delay in performing the obligations does not exceed three months and the amount of unperformed obligations does not exceed 10% of the balance-sheet value of the debtor's enterprise. This stipulation does not apply in the case of a continuous failure to perform the obligations or when the dismissal of the petition may be detrimental to the creditors (paragraph 12 of the LBR).
Furthermore, the court dismisses the petition if the insolvent debtor's assets are not sufficient to cover the cost of the proceedings. The court may also dismiss the bankruptcy petition if it is determined that the debtor's assets are encumbered with a mortgage, pledge, registered pledge, tax lien or maritime mortgage to such a degree that the debtor's remaining assets are not sufficient to satisfy the cost of the proceedings (paragraph 13 of the LBR).
Competent court and its decision
The court competent to consider a bankruptcy petition is the court whose jurisdiction covers the registered seat of the limited liability company being a debtor. In bankruptcy proceedings the court shall conduct the proceedings to secure the assets ex officio.
The court may also place the debtor's assets in receivership if it is feared that the debtor will conceal his assets or otherwise act to the detriment of creditors, and when the debtor fails to fulfil the orders of a provisional court supervisor. If a bankruptcy petition has been filed by a creditor, the court may grant a security subject to proof by the creditor that there are grounds for declaring bankruptcy.
The court's decision declaring bankruptcy includes elements listed in detail in paragraph 51 of the LBR, a summons for the bankrupt's creditors to file claims within a specified time limit, not less than one month and not more than three months.
The decision declaring bankruptcy may be appealed against only by the bankrupt, whereas the decision dismissing the petition to declare bankruptcy may be appealed against only by the petitioner. If an arrangement has been made at the preliminary meeting of creditors, the court shall issue the decision declaring bankruptcy with the possibility to make an arrangement, together with the decision approving the arrangement.
In general, limited-liability companies formed and existing under Polish law are fully liable for their liabilities up to the value of all their assets. However, there are cases when members of management boards may be held liable up to the value of all of their assets for the company's liabilities. The most common situation in which members of management boards are really held liable is when the bankruptcy petition has not been filed within the deadline specified by law. There are only a few conditions under which a member of the management board can be released from that kind of liability. Therefore, it is crucial that the provisions of Polish law regarding the conditions necessary to declare bankruptcy are complied with. The above raises only the most important issues of a very complex subject: it should not be treated as comprehensive advice. The cases of particular companies should be considered in detail on the basis of the respective facts and circumstances.
Ewelina Stobiecka is a Polish attorney at law. She has nine years of experience of providing legal advice to the most important international business entities on the Polish market. Ewelina is particularly highly experienced in corporate law, labour law and litigations.
Rafal Gasiorowski is successfully continuing the prestigious attorney-at-law training in Poland. In his experience in rendering legal service to international entities, he has focused on corporate law, real-estate law and intellectual property law.