Is the limited liability company not paying? Check when the management is liable for the company’s debts
Classical evidence of the ineffectiveness of enforcement is the bailiff’s decision to discontinue the proceedings. However, case law allows for proving this circumstance by other means if it is unequivocally evident from the overall circumstances of the case that satisfaction from the company’s assets was impossible.How to avoid liability as a member of the management board?
Article 299 § 2 k.s.h. provides three grounds for exempting a member of the management board from liability, provided they are appropriately proven:
- Filing for bankruptcy in a timely manner. The concept of “timely” is crucial – according to the Bankruptcy Law, the application should be submitted within 30 days from the occurrence of grounds for declaring bankruptcy. Courts hold that one cannot speak of insolvency in the case of merely temporary payment difficulties; one can only speak of a state requiring the filing of an application when the debtor has not fulfilled the majority of their obligations for a longer period due to lack of funds (Supreme Court judgment of January 19, 2011, V CSK 211/10). Similarly, the opening of restructuring proceedings or the approval of a settlement in a timely manner is treated equally with filing for bankruptcy.
- No fault in not filing for bankruptcy. If the application was not submitted, the member of the management board can avoid liability by demonstrating that despite the lack of an application, they are not at fault. In practice, this is an extremely difficult condition to prove. Courts consistently reject arguments such as: advanced age, health condition, long-term stay abroad, or entrusting the company’s finances solely to the chief accountant. According to established case law: if a member of the management board has no influence on the company’s operations, they should resign from their position. The internal division of responsibilities in the management board (e.g., appointing one member to financial matters) does not exempt others from liability – each member of the management board is obliged to continuously monitor the financial condition of the company.
- No damage on the part of the creditor The member of the management board can demonstrate that the creditor suffered no damage because even if the bankruptcy application had been filed in a timely manner, the creditor would not have received satisfaction (or would have received it to the same extent). This is possible, for example, when the company’s assets were never sufficient to satisfy a given claim.
Limitation of claims
The limitation of claims under Article 299 k.s.h. remains one of the more contentious issues in practice. The currently dominant view assumes that the liability of a member of the management board is compensatory in nature, and the claim becomes time-barred after 3 years from the day the creditor learned of the damage and the person liable for its remedy. In practice, this period is most often counted from the moment the creditor obtains information about the ineffectiveness of enforcement against the company, usually confirmed by the bailiff’s decision to discontinue the proceedings. However, case law also presents differing concepts regarding both the length of the limitation period and the moment its running begins. Exceptionally, the limitation period may even be 20 years if the behavior of the member of the management board constitutes a crime of failing to file for bankruptcy in a timely manner. For this reason, both creditors and members of the management board should assess the issue of limitation each time, taking into account the circumstances of the specific case.
Key practical conclusions
The liability of members of the management board provided for in Article 299 k.s.h. remains one of the most effective instruments for protecting creditors of limited liability companies. From the perspective of those holding managerial positions, it is crucial not only to know the regulations but, above all, to continuously monitor the financial situation of the company and respond quickly to emerging liquidity problems.
Each member of the management board should have real knowledge of the condition of the enterprise, regularly analyze its obligations, and document the actions taken. In practice, it is precisely the appropriately early response to the deteriorating situation of the company that most often determines the possibility of avoiding personal liability for its debts.
The limited liability company has been the most popular form of conducting business in Poland for years. One of the main reasons for its attractiveness is the principle of limited liability – as a rule, the company itself is liable for its obligations, not its shareholders or the persons managing it. In most cases, this is indeed the case. However, the problem arises when the company stops settling its obligations, and the enforcement proceedings against it prove ineffective.
In such a situation, the creditor can direct their claims directly against the members of the management board. This means that the company’s debts can be satisfied from their private assets. The basis for such liability is Article 299 of the Commercial Companies Code (hereinafter: “k.s.h.”), which under certain conditions allows creditors to reach directly into the pockets of the management board members.
The essence of the regulation – who is liable and for what?
According to Article 299 § 1 k.s.h., if the enforcement against the company proves ineffective, the members of the management board are jointly liable for its obligations.
Several issues need to be emphasized here:
Circle of liable entities – only the members of the management board are liable – not the shareholders, not the proxies, not the attorneys, not the members of the supervisory board. In the case of a company in liquidation, the liquidators bear similar liability. If a shareholder also serves on the management board, they are liable under the rules applicable to a member of the management board.
Liability is joint – the creditor can direct the claim to any member of the management board or to all of them simultaneously – regardless of the internal division of responsibilities in the company. The provision is absolutely binding and cannot be waived or limited by the will of the shareholders.
Scope of liability – it is not limited solely to the principal amount owed. It also includes interest on that amount, court costs awarded in the enforcement title issued against the company, and costs of enforcement proceedings.
Conditions for triggering liability – what must the creditor prove?
To hold a member of the management board liable, the creditor must prove two circumstances:
- the existence of a valid obligation of the company (most often confirmed by a judgment or payment order),
- the ineffectiveness of enforcement directed against the company.
The creditor does not have to prove the fault of the member of the management board, nor must they demonstrate a causal link or damage – these circumstances are covered by the statutory presumption working in their favor. The burden of disproving this presumption rests entirely on the defendant member of the management board.
Classical evidence of the ineffectiveness of enforcement is the bailiff’s decision to discontinue the proceedings. However, case law allows for proving this circumstance by other means if it is unequivocally evident from the overall circumstances of the case that satisfaction from the company’s assets was impossible.How to avoid liability as a member of the management board?
Article 299 § 2 k.s.h. provides three grounds for exempting a member of the management board from liability, provided they are appropriately proven:
- Filing for bankruptcy in a timely manner. The concept of “timely” is crucial – according to the Bankruptcy Law, the application should be submitted within 30 days from the occurrence of grounds for declaring bankruptcy. Courts hold that one cannot speak of insolvency in the case of merely temporary payment difficulties; one can only speak of a state requiring the filing of an application when the debtor has not fulfilled the majority of their obligations for a longer period due to lack of funds (Supreme Court judgment of January 19, 2011, V CSK 211/10). Similarly, the opening of restructuring proceedings or the approval of a settlement in a timely manner is treated equally with filing for bankruptcy.
- No fault in not filing for bankruptcy. If the application was not submitted, the member of the management board can avoid liability by demonstrating that despite the lack of an application, they are not at fault. In practice, this is an extremely difficult condition to prove. Courts consistently reject arguments such as: advanced age, health condition, long-term stay abroad, or entrusting the company’s finances solely to the chief accountant. According to established case law: if a member of the management board has no influence on the company’s operations, they should resign from their position. The internal division of responsibilities in the management board (e.g., appointing one member to financial matters) does not exempt others from liability – each member of the management board is obliged to continuously monitor the financial condition of the company.
- No damage on the part of the creditor The member of the management board can demonstrate that the creditor suffered no damage because even if the bankruptcy application had been filed in a timely manner, the creditor would not have received satisfaction (or would have received it to the same extent). This is possible, for example, when the company’s assets were never sufficient to satisfy a given claim.
Limitation of claims
The limitation of claims under Article 299 k.s.h. remains one of the more contentious issues in practice. The currently dominant view assumes that the liability of a member of the management board is compensatory in nature, and the claim becomes time-barred after 3 years from the day the creditor learned of the damage and the person liable for its remedy. In practice, this period is most often counted from the moment the creditor obtains information about the ineffectiveness of enforcement against the company, usually confirmed by the bailiff’s decision to discontinue the proceedings. However, case law also presents differing concepts regarding both the length of the limitation period and the moment its running begins. Exceptionally, the limitation period may even be 20 years if the behavior of the member of the management board constitutes a crime of failing to file for bankruptcy in a timely manner. For this reason, both creditors and members of the management board should assess the issue of limitation each time, taking into account the circumstances of the specific case.
Key practical conclusions
The liability of members of the management board provided for in Article 299 k.s.h. remains one of the most effective instruments for protecting creditors of limited liability companies. From the perspective of those holding managerial positions, it is crucial not only to know the regulations but, above all, to continuously monitor the financial situation of the company and respond quickly to emerging liquidity problems.
Each member of the management board should have real knowledge of the condition of the enterprise, regularly analyze its obligations, and document the actions taken. In practice, it is precisely the appropriately early response to the deteriorating situation of the company that most often determines the possibility of avoiding personal liability for its debts.
