Slovak Republic: Corporate statutory bodies’ liability intensified

Author: | Published: 16 Jul 2018
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New rules were incorporated into the Commercial Code as of January 1 2018 that broaden the liability of the statutory bodies of corporations and members of trading companies.

One of the new rules enshrined in the Commercial Code concerns companies having only one director. If, at the end of that director's term of office, a new director is not registered in the commercial register within 60 days after the end of the three-month period following receipt of the former director's resignation, the former director must file an application within 30 days to wind up the company. The aim is to prevent the existence of a company with no management to speak of, where the former director alleges they no longer have anything to do with the company. This means it is important that directors have a continued interest in a company where they were the sole director, even after the end of their term of office, to comply with the obligation imposed by the Commercial Code.

In direct correlation is another new rule that automatically terminates the office of a director who no longer meets the requirements to discharge the office of director according to the Trading Act. These requirements include integrity and personal credibility. In such a case, the term of office will end automatically on the day when the director ceases to meet the requirements. How this provision will be put into practice remains to be seen. Considering that the Commercial Code provides for automatic termination of office, we can assume that no decision or notice will be issued by an authority in respect of that termination. This could lead to the termination of office of a director without the director's knowledge. In such a case the director, who would in fact be a former director, could be in violation of the obligation to file an application to wind up the company if no new director is appointed.

The amended Commercial Code requires that former directors cooperate as necessary with the courts, tax authorities, insurers, trustees in bankruptcy, and enforcement agents. However, this cooperation is only required when the authorities are investigating company matters that occurred at the time when the former director(s) held office. Where this cooperation is necessary, the director is entitled to reimbursement of the costs he/she incurs in association with cooperating. This is intended to prevent any harm that could arise if a former director refuses to cooperate in matters concerning the time period when he/she held office.

The amended Commercial Code also aims to enhance the standing of creditors in respect of fraudulent directors – so-called straw men. A person who act as a de facto director without actually having been appointed are held equally as liable as properly appointed directors; that is, a person who runs a company de facto and gives instructions to the appointed director will also be held liable. The application in practice of this provision may be problematic, particularly in terms of identifying and proving the actions of these de facto directors – those hiding behind the company who actually run it. It appears it will be up to the creditors to determine who that person is and prove that person's influence within the company.

Finally, the amended Commercial Code provides that where directors fail to lodge a bankruptcy petition in respect of a company, the directors are liable for any damage incurred by its creditors as a result. A final judgment by which a director is ordered to provide compensation for damage caused by their failure to submit an application to declare bankruptcy is, at the same time, notice of that director's expulsion/disqualification. This court order prohibits the director or member of the supervisory body from acting as a director or member of the supervisory body of any company for a period of three years. Persons who are thus disqualified are registered in a special, public register of disqualification. In addition to failure to submit an application to declare bankruptcy, the court may also disqualify a director for failing to cooperate in bankruptcy or enforcement proceedings.

Daniel-Futej
Daniel Futej Jana
Kudelčíková