Civil liability of members of the board of directors of a limited liability company and filing or failing to submit a request for bankruptcy in due time

It can be presumed that the subject of liability Article 299 Act on 15 September 2000 – Commercial Companies Code 1 (Further: k.s.h.) has already been explained in the light of the published and available publications.

Nevertheless, the practice shows that the responsibility of the board members for the liability of a limited liability company (hereinafter: Company) is still a fairly complex and complex issue which requires an in-depth analysis, especially in terms of the conditions which allow for exemption from responsibility for these obligations.

Due to the extended nature of the topic, the author in this study focuses on two correlated conditions indicated under Article 299(2) k.s.h., i.e. to file a bankruptcy application in due time The companies and the lack of fault in the absence of a request for such a notice in due time.

The following analysis does not facilitate the heterogeneous position of case law and doctrine in this issue.

1. Introduction

The purpose of these considerations is to explain from a practical point of view in which circumstances the members of the Management Board of the Company may waive responsibility for the Company's obligations in the event of an effective or ineffective submission of an application for bankruptcy and in the event of failure to submit such a request.

Article 299 k.s.h. regulates the civil liability of the members of the Management Board for the Company's obligations as penalties for mishandling its cases, i.e. those which led to the failure of the creditor from the company's assets due to the impossibility of carrying out effective execution from it[2].

The responsibility of board members is a consequence of the fact that in a capital company it is basically the board that conducts current affairs of the company.

Establishing this responsibility is primarily in the interests of creditors, but also in the interests of shareholders, because they should motivate the board to take good care of the interests of the Company[3]. Such responsibilities of board members, i.e. indicated under Article 299 k.s.h.

was not provided for in the case of members of the governing body for private liabilities in the case of other legal persons – public limited liability companies, cooperatives, foundations or state enterprises.

For public tributes Article 116(116a) Act on 29 August 1997 - Tax Ordinance 4 (hereafter: (o) provide for a similar regulation, including members of the board of directors of the public limited liability company and members of the governing bodies of other legal persons[5].

At this point, it should be pointed out that, by virtue of the amendment of k.s.h., i.e. Act on 19 July 2019 amending the Act – Commercial Companies Code and some other laws 6 was introduced a new type of commercial law company – Simple Stock Company (PSA).

New regulations on this company (Article 300132) introduce a structural counterpart, i.e. Article 299 k.s.h., on the basis of which members of the Management Board may be jointly and severally liable for the company's obligations. Joint responsibility of the members of the Management Board in accordance with Article 299 k.s.h.

is based on solidarity and is not a joint and several liability with the company. In the event of payment by a member of the Management Board, this shall take place in accordance with Article 518(1) Act on 23 April 1964 - Civil Code 7 (Further: (c) – the right of the creditor paid.

On the other hand, this regression does not apply to other members of the board of directors, as the solidarity commitment ceases when it is fulfilled.[8].

Regardless of the above, the liability of a member of the Management Board of the Company in the event of the unsuccessful execution of a given debt towards the Company is not absolute. It is possible for a member of the Management Board to be exempted from being responsible for the Company's obligations.

It can be pointed out that, in addition to the conditions for the members of the Management Board of the Company to be held liable, certain under Article 299(1) k.s.h., i.e.

damage, existence of an obligation of the Company, ineffective execution from the Company's assets, causal link between the damage and failure to submit a bankruptcy application 9 (which, due to the wide-ranging problems, are not the subject of an in-depth analysis in this study), there are so-called exonerative grounds[10].

These conditions allow the members of the Management Board of the Company to be released from liability for its outstanding liabilities. Given the systematics Article 299(2) k.s.h. and doctrine views in this respect, exonerative premises can be divided into three the following groups:

• 1. To submit a request for bankruptcy in due time or at the same time a decision to open a restructuring procedure or to approve an agreement in the procedure for approving the arrangement;
• 2. Failure to apply for bankruptcy due to members of the board;
• 3. No damage has been suffered by the creditor despite the failure to file for bankruptcy and the failure to give a decision to open the restructuring procedure or not to approve the arrangement in the approval procedure[11].

The following are discussed two first from the above mentioned groups of conditions, focusing on the subject matter of the application for bankruptcy The Company and its related consequences for the members of the Management Board in terms of responsibility for its obligations.

2. Submission of a request for bankruptcy in due time – key issues

In assessing the exonerative rationale of submitting a request for timely responsibilities, the following main issues should be addressed:

• 1. Subject liability – who is entitled to apply for bankruptcy of the company and who may be liable for failure to submit it in accordance with Article 299(2) k.s.h.;
• 2. Meaning of the so-called appropriate time Article 299(2) k.s.h.;
• 3. The temporary scope of the company's liabilities for which the members of the board of directors may be assigned responsibility.
• 2.1. Subject liability – who is entitled to apply for bankruptcy of the Company and who may be responsible for its failure to submit according to Article 299(2) k.s.h.

First, it should be pointed out that, regardless of the rules of representation laid down in the Company's agreement, the registration of the active card for filing for bankruptcy The company has each member of the board of directors alone, even if the joint representation is accepted in the company (Article 20(2)(2) Act on 28 February 2003 - Insolvency law, i.e. Journal of Laws of 2019, item 498, Further: u.p.u.)[12].

Only such construction allows individual responsibility of a board member for the Article 299(1) k.s.h. 13 .

Because according to the Supreme Court's ruling of 7 November 2008: „According to Article 4(2)(2) Act on 28 February 2003 Insolvency and resolution law 14 (hereinafter: u.p.u.n.) an application for bankruptcy of a limited liability company may be made by any entity which has the right to represent the company itself or together with other entities.

In the literature, the position that this provision prevails is that: Article 20(2)(2) u.p.u.n., which is its counterpart, authorises the submission of an application for bankruptcy of a limited liability company of each member of the board, whether or not he is entitled to represent the company himself or together with other persons (cf.

Article 205(1) k.s.h.). Therefore, where the management of a limited liability company is established as a multi-stakeholder structure, the rules on total representation shall be excluded as regards the right to apply for bankruptcy of such a company.

In particular, such an application is justified by a literal interpretation Article 4(2)(2) U.P.U. and Article 20(2)(2) U.p.u.n. (verba legis: “any eligible entity to represent the company”).

In addition, this interpretation is supported by the construction of the responsibility of a board member, a creditor of a limited liability company envisaged under Article 299 k.s.h. and the allegations in that provision which may lead to the exclusion of this responsibility.

It is the individual and personal responsibility of each member of the board and at the same time the individualised way of defending that member from the creditor's claimed claim.

This means that each member of the Management Board can be required to take an initiative on its own to submit a bankruptcy application in due time (Article 299(2) k.s.h.), if it intends to exclude this responsibility. It should therefore be concluded that in order to exclude liability on the basis of Article 299(1) k.s.h.

an application for bankruptcy may be made by any member of the board of directors independently of the rules of representation adopted in a limited liability company (Article 4(2)(2) U.P.U. and Article 20(2)(2) u.p.u.n.) 15 ”.

In view of the above-mentioned position of the Supreme Court, any member of the Management Board may apply for bankruptcy, regardless of the other members of that body, if he considers that the company's economic situation and that it is indicated under Article 11(1-2) Act on 28 February 2003 - Insolvency law 16 (further: u.p.u.) presumptions indicate that the Company has become insolvent, i.e.:

• • 1. The debtor shall be insolvent if he has lost the ability to execute his due cash liabilities.
• • 1a. The debtor is presumed to have lost his or her ability to execute his or her due cash liabilities if the delay in the execution of the cash liabilities exceeds three months.

• 2. A debtor who is a legal person or an organisational entity without legal personality, whose separate law confers legal capacity, shall be insolvent also if his or her monetary liabilities exceed the value of his or her assets, and that condition shall continue for a period exceeding twenty four months.

We are dealing with a fairly clear situation where the economic court decides to accept the application for bankruptcy of the Company. In such a situation, members of the board who have not applied for such bankruptcy may also be exempted from liability for the obligations of the company which it has not regulated in the absence of effective enforcement.

A member of the board of directors may rely on another qualified person, such as another member of the board, to apply for bankruptcy[17].

It should be pointed out here that, in such a situation, the members of the board may rely on the exonerative condition in question even if the application for bankruptcy has been submitted by the creditor himself or by another person entitled to it[18].

It is therefore not necessary for the application to come from a person under liability for damages. It is not even necessary for this application to come from the debtor[19].

In addition, it should be stressed that it is not relevant to include a member of the board in the business register. This entry (including deletion) has only an intertemporal character[20]. You should also remember that according to Article 2991 k.s.h.

liquidators of the Company shall be liable accordingly on specified terms under Article 299 k.s.h. However, there are no grounds for liability Article 299 k.s.h. by administrator and syndicate[21]. According to Article 160(1) Although they carry out acts on the account of the fallen but on their own behalf.

1. 2. The concept of so-called proper time in meaning Article 299(2) k.s.h.

For the exemption of a member of the Management Board of the Company from liability for Article 299(2) k.s.h. it is not enough to submit a request for bankruptcy of the Company, because the execution of the aforementioned activities must take place in the so-called "appropriate time" 22 .

The concept of “appropriate time” is a contentious and controversial issue. By one of the views presented in the case law and doctrine 23 , the term ‘appropriate time’ shall be defined on the basis of the time limit within which the application for bankruptcy should be submitted in accordance with Article 21 U.P.U., i.e.:

1. The debtor shall be required no later than the time limit thirty the days from the date on which the grounds for declaration of bankruptcy occurred, submit a request for that notice to the court.
2. If the debtor is a legal person or other organisational unit without legal personality, whose separate law confers legal capacity, the obligation in question Under section 1, rests on any person who, by virtue of a law, a partnership agreement or a statute, has the right to conduct and represent the debtor, either himself or together with other persons.

It does not matter, however, when members of the board took note of the grounds for declaring bankruptcy[24]. This time limit must apply mutatis mutandis to a member of the Management Board who has taken office after the grounds for bankruptcy have arisen, to be counted from the date on which he takes office.

In the same way, a reasonable time should be allowed when, within that period, a claim liable to Article 299(1) k.s.h. not yet due[25].

Following this line of thinking for the determination of the so-called "appropriate time" it will be necessary to determine the moment at which the Company has lost its ability to perform its required monetary liabilities and then to calculate the appropriate deadline based on Article 21(1) be section 2 u.p.u.

In view of the above in the trial against board members based on Article 299(1) k.s.h., making arrangements for the temporary regularity of the application for bankruptcy will require an expert opinion[26].

The date on which the company became insolvent should not be based on the balance sheet alone 27 , it is only a statement of assets and liabilities at the closing date of the current and previous financial year (Article 46(1) Act on 29 September 1994 on accounting 28 , Further: u.o.r.).

This information does not therefore allow to determine at what point in the financial year the Company became insolvent.

second The view compared with the above argument is less stringent. Its supporters point out that the rules adopted under bankruptcy rules should not be ‘mechanically’ when determining the right time. This view is linked to the so-called functional definition of “appropriate time” 29 , which also found approval in part of the case law.

For ‘appropriate time’ within the meaning of Article 299(2) k.s.h. cannot be considered a moment when the Company's assets are not even sufficient for the partial satisfaction of creditors and the costs of insolvency proceedings, i.e. when the Company is already bankrupt. The appropriate time for filing an application is therefore the moment when all creditors can no longer be satisfied, but there is still the Company's assets allowing at least partial satisfaction of creditors in insolvency proceedings[30].

In the judgment of the Court of Appeal in Katowice of 18 May 2018 31 it was accepted that it was sometimes appropriate to apply for bankruptcy within the meaning of Article 299(2) k.s.h. there is a time when the debtor pays off some debts, but it is already known that due to lack of funds he will not be able to satisfy all his creditors.

So sometimes it is not only the time when the debtor has stopped paying his debts completely and has no assets to meet them[32]. Of course, the possibility of filing a bankruptcy application in due time is only possible if the application is made effectively.

It does not exempt from liability the submission of a request returned due to formal deficiencies, even if it is filed in due time[33]. Given the literal content Article 299 k.s.h., the possibility of being released from responsibility does not, in principle, exclude the rejection of an application made in due time.

However, if the rejection of the application has taken place for the reasons envisaged under Article 13(1) and 2 u.p.u. (insufficient insolvency), it will normally be indicated in such a provision that the application in question was not made in due time[34].

1. 3. The question of the temporary scope of the Company's liabilities for which the members of the Management Board may be assigned responsibility

In the context of this exonerative condition, the question of temporal scope in relation to the dependence on board members to assume their responsibilities in the performance of their duties within a certain period of time should be highlighted in the context of the bankruptcy request. Unfortunately, also in this case, as in the case of the concept of "appropriate time", the views of the case law and doctrine are not uniform.

According to the important judgment of the Court of Appeal in Katowice of 6 March 2018 35 : „Liability relating to the ineffective execution of a specific liability from the company's assets shall be borne by the persons who are members of its board of directors at the time of that obligation.

A member of the Management Board shall be responsible for the obligations of the company which existed at the time of his or her term of office, in so far as the conditions for bankruptcy have occurred at that time and no request for its announcement has been submitted.’ (...) Notwithstanding the accepted concept of the nature of the liability of a board member for the obligations of the company, this liability undoubtedly includes the obligations of the company existing and payable at the time of the performance of the function by a particular person.

Reasons for liability under Article 299(1) k.s.h. are the existence of a specific liability of the Polish limited liability company.

at the time when the person was a member of the company's management board (and thus not later) and the ineffective execution of that obligation against the company, whether at the time that person remained a member of the management board, or after its cancellation from the board of directors[36].

A key issue is therefore the temporary scope of the company's liabilities for which members of the board of directors can be attributed.

The jurisprudence predominates the view that the liability associated with the ineffective execution of a specific liability from the company's assets is borne by persons who are members of its board of directors at the time of that obligation.

There is also a view in both the case-law and science that a member of the board of directors is responsible for the obligations of the company which existed at the time of his or her term of office, in so far as the conditions for bankruptcy have occurred at that time, and no request for it has been made.[37].

A member of the Management Board shall therefore be liable for the obligations of the company existing at the time at which he served on the Management Board, in so far as there were at that time conditions for bankruptcy and did not submit a request in due time and for the subsequent obligations of the company which arose in the absence of that notification.[38].

Members of the Management Board may, on the other hand, waive their liability by demonstrating that there were no grounds for a request for bankruptcy at the time of their duties and thus demonstrating that there is no causal link between the way in which the management is exercised and the damage suffered by the creditor of the company’ 39 .

According to the above view, a member of the Management Board may prove that there was no basis for a bankruptcy application at the time he was in office. However, the defendant member of the board will have to prove this.

According to the judgment of the Court of Appeal in Katowice of 25 May 2018 „The fact that, at the time the defendant served as a member of the board of directors, there were no grounds for filing for bankruptcy should be proved by the defendant (Article 299(2) k.s.h. in conjunction with Article 6 k.c.) 40 ”.

Effectively proving by a member of the board of directors the circumstances in question indicates that there is no one of the conditions for liability Article 299 k.s.h., i.e. the causal link between the management and the damage suffered by the creditor of the company.

According to the judgment set out above, a member of the board of directors shall be responsible for the obligations of the company which existed at the time of his or her term of office, in so far as there were conditions for bankruptcy at that time and no application was made for his or her[41].

However, as indicated in that judgment, there is also the view that liability related to the ineffective execution of a specific asset obligation The companies are held by persons who are members of its management board at the time of this obligation (regardless of whether there are any conditions for such bankruptcy)[42].

3. Lack of fault of the board member in not filing a request for bankruptcy

Discussion of this exonerative condition requires First, Note that responsibility with Article 299(1) k.s.h. is considered a case of liability for damages based on the principle of guilt 43 , where this wine consists of not submitting or too late submitting a request for bankruptcy of the Company.

The nature of compensation liability was also confirmed by the case law on the grounds of the limitation of claims based on Article 299 k.s.h. 44 . This exonerative condition in context Article 299(2) k.s.h.

should be interpreted in such a way that the absence of fault in the absence of an application for bankruptcy in due time may be argued both if the application for a declaration has not been made effectively and when the application has been made, however, after the expiry of the time limit applicable to the declaration of bankruptcy[45].

From the responsibility of Article 299(1) k.s.h. can only release the lack of any blame. The principle of individual liability of board members makes it possible for each member of the board to rely on a declaration of bankruptcy in due time, so that only the member of the board whose fault cannot be attributed can rely on a lack of fault[46].

In order to prove this exonerative condition, the members of the board required to file for bankruptcy (Under Article 21(3) u.p.u.) may indicate different circumstances or events showing that their failure to notify the proposal within the statutory time limit was not possible. As regards the circumstances on the basis of which it was considered that the members of the Management Board of the Company were not responsible for not filing in due time a request for bankruptcy of the Company, it is possible to refer to the rich achievements of the judicature and doctrine in this respect.

First, indicate the situation of the justified absence of the member of the management board against whom the claim is addressed, during the period during which the application for bankruptcy should be filed.

According to the case law and doctrine, the responsibility of a board member will exclude absence due to severe illness, preventing him from performing functions and associated with hospital treatment[47].

However, maternity leave or parental leave does not, according to the Supreme Court, in itself mean a lack of guilt in not filing for bankruptcy in due time[48].

A case justifying failure to file a bankruptcy application in due time shall also be regarded as misleading a member of the board of directors by his other colleagues as regards the company's assets[49].

The controversial question is whether the division of tasks between the members of the debtor's board of directors resulting from the management rules or the company's contract (statute) is the basis for recognising the non-fault of the member of the board of directors whose tasks, according to that division, do not include the financial management of the company and monitoring the risks to its solvency.

Unfortunately, both doctrine and jurisprudence have not developed a uniform position in this respect. 50 , However, in case law and doctrine against the background Article 299(2) k.s.h.

dominates the view that this possibility is denied and indicates only the internal (internal corporate) effect of such a division of tasks which cannot be opposed to the creditors of the Polish limited liability company. 51 .

The lack of knowledge of the Company's bad financial condition, which results directly from the division of responsibilities between individual members of the Management Board, cannot indicate a lack of guilt in not submitting a request for bankruptcy of the Company in due time.

As the Supreme Court rightly pointed out in the judgment of 2 June 2011 52 , When examining when the conditions for submitting an application for insolvency proceedings have been met, it should not be based on the subjective conviction of board members of the expected future financial situation of the company, but on objective criteria concerning the actual financial situation of the company[53].

At this point, it is also appropriate to point out the question of persons who have assumed the function of a member of the board as soon as there are grounds for declaring bankruptcy. In such a case, the time limit for filing an application for bankruptcy shall be calculated from the date on which the office starts.[54].

The Court of Appeal in Warsaw also agreed with this view in its judgment of 11 April 2017 55 , in which he stated that ‘A member of the board who holds this function less than two weeks (Article 21(1) (c) shall not be liable for the obligations of the company in question under Article 299(1) k.s.h., since he cannot be blamed for failing to file for bankruptcy." According to the reasons for the judgment in question: ‘(...) In this context, it should be noted that according to Article 21(1) the debtor is obliged, no later than the deadline two weeks from the date on which the ground for bankruptcy was established, a request for bankruptcy has been filed in court.

If the debtor is a legal person or other organisational unit without legal personality, whose separate law confers legal capacity, the obligation in question under Article 21(1) u.p.u.n., rests on anyone who has the right to represent him himself or together with other persons (Article 21(2) U.P.U.N.

Therefore, a member of the board was required to apply for bankruptcy of the company within the time limit two weeks from the date on which the grounds for declaring bankruptcy occurred.

It is clear that for a member of the board appointed after the grounds for bankruptcy have appeared, the time limit in question under Article 21(1) U.p.u.n. began running from the moment of appointment to the board.

It is also undisputed that a member of the board of directors was neither entitled nor obliged to apply for bankruptcy after his dismissal.’

By the way, it is worth pointing out that according to the introduction In 2016 section 4 of Article 299 k.s.h. the members of the Management Board of the Company shall not be liable for not submitting a request for bankruptcy at the time of execution by the Forced Board or by the sale of the company, under the provisions of the Act of 17 November 1964 - Code of Civil Procedure 56 , where the obligation to apply for bankruptcy arose during the execution.

4. Summary

It should be noted, in the light of the above analysis, that the issue of the exemption of board members from liability for the Company's obligations in the event of exonertial conditions such as: (a) filing an application for bankruptcy in due time, (b) demonstrating a lack of fault in not submitting a request for bankruptcy of the Company, is largely dependent on the judge's cognizance and the view on which the court took the decision, while conducting proceedings initiated on the basis of the Article 299 k.s.h.

In case of first of the above mentioned premises the most problematic seems to be two Issues: the concept of “appropriate time” and the temporary scope of the company’s liabilities for which members of the board of directors may be assigned responsibility.

With regard to the thesis set out at the beginning of this Article, depending on the interpretation by the court of the concept of ‘appropriate time’ of filing an application for bankruptcy of the Company, a member of the Management Board will be able to waive liability for Article 299 k.s.h.

where it is established that he has made the application in question within the time limit resulting from Article 21(11) u.p.u. or when, in principle, all creditors can already be satisfied, but there is still a company's assets allowing at least partial satisfaction of creditors in insolvency proceedings.

After second, also depending on the judgment of the court, in the event of a motion for bankruptcy being dismissed Due to the poor insolvency assets, a member of the board of directors will be liable if it is shown that the claim was due at the time of his performance or that there were already grounds for declaring the company bankrupt.

Unfortunately, as far as this issue is concerned, it is faced with different approaches in existing case law and doctrine.

Therefore, it is most often the case that a given measure may be contested by the bringing of an erasure procedure Article 521 k.p.k., is only explained at the stage of the formal examination of the cassation already brought to the Supreme Court.

As regards second from the exonerative premises mentioned above, it is an opportunity to prove that there is no fault in not filing a request for bankruptcy of the Company, or bringing it in the wrong time, is based mainly on case law and must be assessed each time by the court ruling the case.

For example, a court assessing the inability to participate in the conduct of matters of the Company will examine whether a member of the Management Board had an objective reason, which actually justifies not submitting a request for such bankruptcy.

In conclusion, when examining in practice the responsibility of board members, in particular in relation to issues relating to the bankruptcy request, it is important to examine with great accuracy the facts of the case and the case law relating to it. It therefore seems appropriate to clarify or extend the rules Article 299 k.s.h.

so that in exhaustive the manner in which the doubts concerning the interpretation of the exonerative conditions indicated in the provision in question are clarified.

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