Liability of board members for company debts
Limited liability company
Many entrepreneurs opt for a limited liability company, believing their private assets are completely safe. This assumption is only true as long as the management acts legally and exercises due diligence. The key regulation that keeps managers awake at night is Art. 299 of the Commercial Companies Code.
When does a board member respond with their own assets?
If enforcement against a company proves unsuccessful, the board members will be jointly and severally liable for its debts. This means that a creditor can directly approach the CEO or CFO. This liability covers arrears to contractors as well as public law obligations (Social Insurance Institution, Tax Office).
How to effectively get out of responsibility?
There are so-called exonerating grounds that allow the board to avoid financial disaster. These include:
- Filing an application for bankruptcy within the deadline: This is the most effective line of defence. The deadline is currently 30 days from the date insolvency occurred.
- Proof of innocence: Proof that the failure to file for bankruptcy was not the fault of the management board member (e.g., due to long-term illness preventing them from performing their duties).
- No loss on the creditor's side Demonstrating that even if the bankruptcy petition had been filed on time, the creditor would not have had their claims satisfied.
Professional corporate compliance
At W MONUM Lawyer’s Office, we educate management boards on how to maintain documentation and monitor financial liquidity so that they can utilise legal „safeguards” in the event of a crisis. A good strategy for protecting private assets begins at the point of signing the first contracts, not when a payment demand is received.
