Each member of the management board should remain vigilant when the company starts experiencing financial difficulties. Even the first signs of liquidity problems should raise the board’s caution. Missing the appropriate moment to file for bankruptcy can have serious consequences for a board member.
Insolvency of a Company and the Bankruptcy Petition
Bankruptcy can be declared for a company that has become insolvent. An insolvent company is one that has lost the ability to settle its due obligations (in other words – pay its debts when they fall due). Indicators of insolvency include:
- A delay in settling liabilities exceeding three months,
- A situation where the company’s debts exceed the value of its assets, and this state persists for more than two years.
Deadline for Filing a Bankruptcy Petition
When should a bankruptcy petition be filed? The Bankruptcy Law provides a 30-day deadline from the moment the state of insolvency arises. Unfortunately, precisely determining the date of insolvency is not easy. Therefore, board members should regularly monitor the status of unpaid obligations to catch the moment when the company has not been repaying its debts for three months. In such a case, accounting documents should be gathered as soon as possible and a bankruptcy petition prepared.
Consequences of Failing to File for Bankruptcy on Time
Management board members bear broad liability for not filing a bankruptcy petition in due time. Below are several legal bases and consequences of such an omission:
Article 299 of the Commercial Companies Code – Civil Liability
The most common legal remedy used by creditors is Article 299 of the Commercial Companies Code. When it turns out that the company has no assets to repay its debts, creditors may sue the management board members for payment.
Article 116 of the Tax Ordinance – Tax Liability
In brief, Article 116 of the Tax Ordinance serves as an equivalent to Article 299 CCC in relation to tax obligations (most often CIT and VAT, but also obligations like repayment of subsidies).
Article 586 of the Commercial Companies Code – Criminal Liability
Failure to file for the company’s bankruptcy constitutes a criminal offense, punishable by a fine, restriction of liberty, or imprisonment for up to one year. The offender is the board member who, through negligent conduct, jeopardized the safety of business transactions.
Article 373 of the Bankruptcy Law – Ban on Business Activity
A management board member may be subject to a ban on conducting business and holding management positions. This ban is imposed for a period ranging from one to ten years. Importantly, a person subject to such a ban is automatically entered into the National Debtors Register (KRZ). These data remain visible in the KRZ for three years after the ban ends. This is a particularly severe sanction, especially for professional managers.
A management board member should continuously monitor the company’s debt status to stay alert in the event of insolvency. Missing the right moment to file for bankruptcy can lead to serious consequences for the board member – both civil and criminal.
