Serving as a member of a company’s management board means not only a wide a range of powers. It also entails extensive liability, including liability for the obligations of the company if it becomes insolvent.
Debts of a company and the related liability of a member of the management board
According to Article 299 of the Polish Code of Commercial Companies, if enforcement against a company turns out to be ineffective, the members of the management board are jointly and severally liable for the company’s obligations. This liability includes tax obligations and obligations vis-a-vis the ZUS (National Insurance Institution). A member of the company’s management board may also be encumbered with the company’s debts under the provisions of the Polish Bankruptcy Law. More information on this issue is available IN THIS ARTICLE.
On the basis of these provisions, creditors may demand the repayment of debts directly from the members of the management board. This is possible if the members of the board are unable to claim the existence of circumstances that would allow them to be released from this liability. Often, these amounts exceed the financial capabilities of those persons. On the basis of a court judgment, a creditor of the company may carry out enforcement with respect to the property of a member of the management board. This is possible even if this person no longer serves on the board. Enforcement proceedings may take years, making it impossible for the member of the board (including a former member) to normally function and engage in gainful employment.
Consumer bankruptcy as a lifebelt for members of the management board
If a person serving on the management board of a company is encumbered with liability for the company’s debts that he or she is unable to repay and creditors start enforcing their claims with respect to the property of the member of the board, consumer bankruptcy may be the way out. This solution makes it possible to permanently solve the problem of these debts. Unlike in the case of court enforcement, which—even in the cases where it is not a continuous process—may be recommenced and drag on for years.
A successful application for declaration of consumer bankruptcy may be filed by both an existing and a former member of the management board of a private limited company or a joint-stock company. Since the requirements for the declaration of consumer bankruptcy have been softened (by means of eliminating the reason for dismissing the application on the grounds of failure to apply for the company to be declared bankrupt in spite of being obliged to do so), there are no obstacles for the court to declare an existing or former member of the management board bankrupt, provided that this person is not at at the same time an entrepreneur.
Consumer bankruptcy allows for a “fresh start” by means of a substantial reduction of the debts that arose prior to the declaration of bankruptcy. In most cases, once the assets have been liquidated and the repayments plan has been carried out, all of the debts are canceled. As a result, creditors are unable to enforce these debts, both during the bankruptcy proceedings and after its completion.