Considering the economic developments of the recent years, bankruptcy remains a very current topic for many entrepreneurs. Even if a member of the statutory body did not cause the bankruptcy of the company, he or she may in some cases be personally liable or responsible to the company’s creditors. Below, we discuss the obligations that imminent bankruptcy entails for members of the statutory bodies of business corporations.

Informing the highest body

If a company is threatened with bankruptcy, a member of the statutory body is obliged to convene the supreme body or inform the sole shareholder and propose appropriate measures to resolve the situation. Such a solution may be, for example, a financial injection from a partner (e.g. in the form of a loan or a contribution outside the registered capital) or, conversely, liquidation of the company.

Prohibition of profit payments

First of all, a member of the statutory body may not pay out a share of profits or advances thereon, if this would cause the company to go bankrupt, irrespective of the fact that the distribution of profits has been decided by the general meeting. In a situation of imminent bankruptcy, it will then be necessary to proceed with much greater caution to ensure that any payment of profits does not push the company into bankruptcy. Should a member of the statutory body pay out the profit in this situation, the fiction of breach of the duty to act with due care applies without further ado.  

Obligation to file an insolvency petition

If bankruptcy cannot be averted and imminent bankruptcy turns into actual bankruptcy, each member of the statutory body is obliged to file a debtor’s insolvency petition without undue delay after finding out or after, with due diligence, he should have found out about this bankruptcy. Therefore, even if a member of the statutory body did not know about the bankruptcy but should have known and could have known, he is not exempt from liability. 

A person, who fails to file an insolvency petition on time, will be liable to creditors for damage or other harm caused by the breach of this obligation under article 99 of the Insolvency Act. Liability of a member of the statutory body shall be discharged only if he or she proves that the breach of the obligation to file an insolvency petition did not affect the satisfaction of claims in the insolvency proceedings, or if the person concerned failed to fulfil this obligation due to facts, which occurred independently of his or her will (external circumstances) and which he or she could not have avoided, even if he or she had made every effort that could fairly be required of him/ her. 

Author: Tomáš Brůha