Release by a member of the Management Board of Sp. z o.o. from liability for its obligations on the basis of the condition that the application for bankruptcy is filed in due time or that the application is not filed without fault

Members of the Management Board of the limited liability company may, in certain cases, bear joint responsibility for the obligations of the company in which they are acting or acting, in accordance with Article 299 § Act on 15 September 2000 Commercial Companies Code 1 (Further: k.s.h.), if the execution against the company of o.o.

proves to be ineffective, the members of the board shall be jointly and severally liable for its obligations.

Although the responsibility in question under Article 299(1) k.s.h., a member of the board may, in fact, be released – among others, if he demonstrates that a bankruptcy application has been filed in due time or that the failure to report such a request was not due to him 2 – in practice, there are often disputes in courts about whether a person who is the hub member of the company's body has kept the obligation to file a bankruptcy application in due time and whether the failure to file the application was without the person's fault.

On first The plan of these disputes often raises the notion of insolvency of the debtor, as it is up to the occurrence of the insolvency of the company that the obligation to declare the bankruptcy of the company has been updated and, if that obligation has not been met, that the member of the board of directors will be jointly responsible for the company’s obligations with it.

1. Introduction

The purpose of this article is to approximate the issue of the release by a member of the board of directors of sp. z o.o. of liability for the company's obligations on the basis of the condition that the application for bankruptcy be filed in due time or not to apply for bankruptcy without fault.

Failure, according to Article 10 Act on 28 February 2003 - Insolvency law 3 (Further: p.u.) announces to the debtor who has become insolvent.

The insolvency of the debtor is the basis for the declaration of bankruptcy, which entails the obligation to apply for bankruptcy on the basis of Article 21(1) p.u., according to which the debtor is obliged, no later than the deadline thirty the days from the date on which the ground for bankruptcy was made, make such a request to the court.

If the debtor is a legal person or other non-legal entity whose separate law confers legal capacity, on the basis of Article 21(2) p.u.

the obligation to submit an application for bankruptcy lies with anyone who, under the law, a partnership agreement or a statute, has the right to conduct and represent the debtor, either alone or together with other persons.

Submission of an application for bankruptcy in due time or failure to apply for such a declaration without fault to a member of the board of directors shall, according to Article 299(2) k.s.h., condition for the release of a board member from joint and several liability on the basis of Article 299(1) k.s.h., if execution against the company proves unsuccessful.

With a view to a brief analysis of such a matter and its practical dimension, the author of this publication First, pay attention to the legal grounds for the obligation for a member of the management board to submit a request for bankruptcy of the company, positive grounds for declaring bankruptcy, to then discuss the rules of liability of a member of the management board of the Polish limited liability company.

for the obligations of the company.

The final part of the publication is an analysis of the grounds for the release by a member of the board of directors of the company from liability for the company's obligations on the basis of the condition that the application for bankruptcy is filed in due time or that such a request is not filed without fault, with particular regard to judicial caselaw in this regard.

1. The legal basis for the obligation to apply for bankruptcy by a member of the board of directors of the company o.o.

The standard grounds for submitting an application for bankruptcy are under Article 21 p.u.

The general rule in this respect is Article 21(1) p.u., according to which the debtor is obliged, no later than the deadline thirty the days from the date on which the ground for declaration of bankruptcy occurred, submit a request for such a notice to the court. In the case of members of the board of directors of the company of o.o.

will apply Article 21(2) p.u., which provides that if the debtor is a legal person or other organisational entity not having legal personality, whose separate act 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.

In this context, it is worth pointing out that according to Article 201(1) k.s.h. it is the board that conducts the affairs of the company and represents it, and according to Article 208(3) k.s.h. each member of the board shall have the right and duty to conduct the affairs of the company. In addition, according to Article 204(1) k.s.h.

the right of a member of the board to conduct and represent the company concerns all judicial and extrajudicial activities of the company.

In this regard, it must be stated that the obligation to apply for bankruptcy lies with the board of directors of the limited liability company, since it has the right to conduct and represent its affairs under the Act.

3. Positive grounds for declaring bankruptcy

The positive condition of bankruptcy is the insolvency of the debtor, from which we can in turn derive two further sub-types of insolvency. These sub-contributions are independent of each other and enough to be fulfilled one of them, to give rise to bankruptcy. one of which it is universal and refers to all debtors, while construction second the condition is based on a situation where the value of the liabilities over the asset is outweighed.

On the grounds of p.u., there are also negative grounds for bankruptcy, which depend on whether the court has filed for bankruptcy, but this matter goes beyond the scope of consideration of this publication. Positive grounds for bankruptcy under Article 11 P.U.

first from the already mentioned subprime (basic) bankruptcy can be found under Article 11(1) p.u., according to which the debtor is insolvent if he has lost the ability to execute his due cash liabilities.

This regulation complements Article 11(1a) p.u., which provides for the presumption that the debtor has 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.

The debtor shall be considered to be insolvent if he fails to comply with his due cash liabilities and this applies to both civil and public liabilities.[4]. In the judgment of 15 May 2019 The Supreme Administrative Court indicated that, in order to determine whether the debtor is insolvent, it does not matter whether he is carrying out all or only some of his monetary liabilities. The amount of liabilities not executed by the debtor is also irrelevant[5].

In the judgment cited, the Supreme Administrative Court pointed out that, in order to determine whether there were grounds for declaring bankruptcy, it was only important that the debtor did not comply with the required obligations and that the legislator did not link the insolvency with the debtor's assets, but with a specific omission, the cessation of payment of debts.

Even the failure of the debtor to fulfil its obligations of little value means its insolvency within the meaning of that provision.

The reason for the insolvency resulting from the cessation of the required obligations makes it unnecessary to examine the ‘appropriate time’ for the submission of the bankruptcy application for this reason to analyse the state of the company’s assets and whether the obligations exceed its value.

In this case, it is important to have an objective state of non-compliance with the required obligations. Insolvency exists not only when the debtor has no funds, but also when the debtor does not comply for other reasons[6].

As the Supreme Court noted in the justification for the judgment of 19 March 2019, non-compliance due to loss of capacity to meet them concerns liabilities due, including multi-month defaults, and does not always depend on the occurrence of several (at least two) creditors of defaulted liabilities[7].

In that ruling, the Supreme Court stated that a different interpretation is excluded, for each and even one the creditor must not be unjustifiably and unduly deprived of the possibility of legal protection of his claims of significant sometimes significant values and finally stresses that in such a correct assessment of the insolvency of the debtor on the basis of Article 11(1) p.u.

it is important to lose the ability to execute due cash liabilities irrespective of their value, although short-term or temporary backlogs in the settlement of such debts generally do not justify bankruptcy (Article 11(1a) and (2) p.u.).

second of the positive sub-cases of bankruptcy of the conditions is complementary and refers to legal persons and specific organisational units. He's regulating it. Article 11(2) p.u., according to which a debtor who is a legal person or an organisational entity without legal personality, whose separate law confers legal capacity, is insolvent also when its monetary liabilities exceed the value of its assets and that condition persists for a period exceeding twenty four months.

At the heart of the regulation Article 11(2) The security of creditors lies in the security of the debtors, and this can only be assessed in the context of the real value of the debtor's assets, rather than accounting records.

It is not enough to make a mechanical statement of the amounts resulting from the balance sheet, it is necessary to assess the actual condition of the company, and the concepts of both ‘liabilities’ and ‘materials’ used in this provision cannot be fully identified with the terms ‘activities’ and ‘liabilities’. 8 .

To the property in question under Article 11(2) p.u., no inclusion of non-insolvency components is included. Other liabilities section 2, no future liabilities, including liabilities subject to suspension and liabilities vis-à-vis the shareholder or shareholder in respect of a loan or other legal activity having similar effects shall be included. Under Article 342(1)(4) (Article 11(4) p.u.).

It should be borne in mind that, on the basis of Article 11(5) p.u. it is presumed that the debtor's monetary liabilities exceed the value of his assets if, in accordance with the balance sheet of his liability, except for provisions on liabilities and liabilities vis-à-vis affiliated entities, exceed the value of his assets and this condition persists for a period exceeding twenty four months.

1. Principles of liability of the member of the management board of the company with regard to the obligations of the company

The basis for the liability of the members of the management board of the company with regard to the obligations of the company is Article 299(1) k.s.h., according to which, if execution against the company proves unsuccessful, members of the board of directors are jointly and severally liable for their obligations. The liability of the members of the Management Board referred to in that provision shall be based on a law of specific compensation liability, the purpose of which is to provide the creditors of the company with additional protection where the enforcement initiated against the company has not led to the satisfaction of their claims for reasons attributable to the members of the Management Board of the company[9].

To assign liability based on Article 299(1) k.s.h. it is necessary to show third conditions: the existence of a claim against the company, the defendant's acting as a member of the board of directors and the ineffectiveness of the enforcement of the company.

Court of Appeal in Poznań in the justification of the judgment of 29 October 2019 stated that responsibility with Article 299(1) k.s.h. members of the board of directors of the company have been subject since their appointment, regardless of whether they have been formally notified to the register of entrepreneurs[10].

In the context of the grounds for the existence of claims on the company, it should be noted that to accept liability from Article 299(1) k.s.h. it is sufficient to have an obligation at the time of acting as a member of the Management Board; it is not necessary that the commitment is due during this period[11].

The case law of the Supreme Court indicates that the ineffectiveness of the execution should be understood as inability to obtain satisfaction from all the assets of the company, and not only certain components thereof. In the judgment of 30 May 2008 The Supreme Court pointed out that if, after finding that the execution was unsuccessful, the creditor could, however, obtain satisfaction from the company (in the case where the view was formulated, discontinuance of proceedings an insolvent company has merged with another company and the debtor’s assets have changed substantially), there is no reason to assume that it retains the right to claim satisfaction from the assets of the company’s board members[12].

In the explanatory memorandum of the judgment of 28 November 2018 The Bialystok Court of Appeal indicated that it would not be necessary, however, in all cases, to initiate execution, since it is clear from the circumstances of the case that the company has no assets from which the creditor could obtain satisfaction, that enforcement against the company is not necessary[13].

In the judgment cited above, the Court of First Instance stressed that it was a questionable failure to recover the claim from the company itself, that is to say, the situation in which it is clear from the circumstances of the case that the company has no assets from which the creditor could obtain satisfaction of his claim.

Consequently, the ineffectiveness of the enforcement constitutes the asset condition of the company, which is known that the execution of the company's assets will not lead to the satisfaction of the creditor.

In a similar tone, the Court of Appeal in Krakow reiterated, this time in judgment with 8 April 2019, in the statement of reasons that the creditor does not have to demonstrate that he has exhausted all means of execution, the provision merely requires the demonstration of the ineffectiveness of execution by means of available and convincing means of proof.[14].

In the explanatory memorandum of the judgment of 6 March 2019 The Court of Appeal in Warsaw, on the other hand, stressed that the creditor suing a member of the management board of the company should at least have the title of enforcement against the company, from which the creditor is entitled to benefit from the company.

Where that title takes the form of a final judgment judging the benefit in a case brought against the company, the defendant member of the board of directors may not raise an effective plea concerning the existence of an obligation of the company and its amount[15].

However, the Court of Appeal in Warsaw also stated in the statement of reasons that if the claimant (the believer) only holds an enforcement title in the form of a notarial act of a declaration of execution by the debtor in favour of the creditor, the defendant was entitled to contest the existence of an obligation established by that title and its amount.

1. Reasons for discharge of liability for the company's obligations by a member of the board of directors – filing a bankruptcy application in due time or not filing such a request without the fault of a member of the board of directors

According to Article 299(2) k.s.h. a member of the board may be released from joint and several liability for the company's liabilities in the event of unsuccessful execution of its assets (the liability in question). Under Article 299(1) (k.s.h.) inter alia, if it demonstrates that a bankruptcy application has been filed in due time or that it is not his fault that the application has not been filed.

This means that the burden of proof of demonstration (proof) one on the condition that a member of the Management Board is released from responsibility for the company's obligations, it is the member of the Management Board.

As pointed out by the Court of Appeal in Szczecin in its judgment of 27 March 2018, such a distribution of the burden of proof is justified by the fact that creditors generally do not know the state of interest of the company, whereas knowledge in this respect may be required of the members of the board of directors, and the legislator uses the requirement in this respect to prove exonertial conditions and not only to provide for their similarity, and in this respect detailed rules on the evidence of the act should be applied.

17 November 1964 - Code of Civil Procedure 16 (i.e. Journal of Laws of 2020, item 1575).

5.1. Application for bankruptcy in due time

According to Article 299(2) k.s.h. a member of the board of directors of a capital company may be released from the joint and several liability of the company when it demonstrates that a request for bankruptcy has been made in due time and that the concept of ‘appropriate time’ is crucial in this case.

The case-law considers that, although the concept of the time to apply for bankruptcy should be interpreted in the light of bankruptcy law, it cannot be transferred to the ground Article 299(2) k.s.h. explicitly the requirement that, by a ‘appropriate time’, the term specified under Article 21(1) p.u.

The caselaw also points out that the concept of appropriate time in the context of Article 299(2) k.s.h. should be understood as a moment when all creditors can no longer be satisfied, but there is still a company's assets allowing at least partial satisfaction of its creditors in insolvency proceedings[17].

This leads to the conclusion that it is 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.

The time when the debtor pays off some debts is appropriate for filing a bankruptcy application, but it is known that due to his situation he will not be able to satisfy all his creditors 18 , and consequently, for the ‘appropriate time’ within the meaning of Article 299(2) k.s.h. cannot be recognized when the company is already bankrupt[19].

5.2. Failure to apply for bankruptcy without the fault of a board member

According to Article 299(2) a member of the board of directors of a capital company may be released from the joint and several liability of the company when he demonstrates that the failure to file for bankruptcy was not his fault. Note that in this respect, the construction Article 299 k.s.h.

introduces the presumption of guilt of a member of the board of directors, as the member of the board of directors of the company is obliged to exercise care taking into account the professional nature of his activities.

In the absence of a request for bankruptcy in due time, the member of the board of directors shall be responsible for proving that he is not guilty.

The jurisprudence predominates the view that only a factual situation which effectively and objectively prevents participation in the management of the company’s affairs may justify a request for the existence of innocent circumstances exempting a member of the board from liability[20].

The lack of fault of a member of the board will therefore occur in exceptional situations such as long-term illness or failure to provide information on the company, provided that actions are taken to gain knowledge of the company's financial condition.

The performance of their tasks by the members of the company's board of directors with due care should be consistent with their orientation on the financial condition of the company.

The Board member's actions to raise funds to repay the company's growing liabilities and reduce its debt are not relevant for the assessment in the light of Article 299(2) k.s.h. whether he is not guilty of failing to file for bankruptcy 21 , Although this argument is often raised by board members in practice.

Interestingly, there are also situations in which a member of the board of directors is responsible for the obligations of the company with a limited liability on the basis of Article 299(1) k.s.h., arising after filing for bankruptcy. According to the Supreme Court resolution of 30 January 2019, a member of the Management Board will be responsible for such obligations if they remain in relation to the legal relationship existing at the time of the bankruptcy application[22].

6. Summary

In the light of the above considerations, it should be noted that although according to Article 299(2) k.s.h. a member of the board of directors of a capital company may be released from joint and several liability for the company's obligations if he demonstrates that a bankruptcy application has been made in due time or that the failure to apply for such an announcement is not his fault, it is likely that such liability may be greatly impeded.

First, it should be pointed out that the case-law predominates the view that, in order to establish the insolvency situation, it is only important that the debtor does not fulfil the required obligations.

It is not important that it does not carry out all or only some of its monetary liabilities and does not matter the amount of liabilities not executed by the debtor, in which case the obligation to apply for bankruptcy shall be updated.

This view is important for the time it is appropriate to apply for bankruptcy, in particular since, in the light of the caselaw, it should be understood that this is the time when it is known that all creditors cannot be satisfied, but there is still a company's assets allowing at least partial satisfaction of its creditors in insolvency proceedings.

In the absence of fault, however, it should be pointed out that the case-law indicates that the release of a member of the management board of the company from the joint and several liability for the company's obligations will only justify a factual situation which effectively and objectively prevents him from participating in the management of the company's affairs, which may be the basis for the application for the existence of innocent circumstances exempting the member of the management board from liability. Nor will a member of the board of directors be freed from the guilt of failing to file a bankruptcy application to raise funds to repay the company's growing liabilities and reduce its debt.

In conclusion, in the light of the case law and the provisions of the K.s.h., the requirement for board members to be able to discharge their liability for the company's obligations is strict and is intended to protect economic turnover and creditors.

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2 Based on Article 299(2) k.s.h.