It is often said that the main consequence of ineffective enforcement against a company is the obligation to pay its debts from the personal assets of the management board members (Article 299 of the Commercial Companies Code, “KSH”). Less often, however, another, equally important issue arising from a company’s financial difficulties is addressed: a court ban on conducting business activity imposed on the persons managing the entity.
A criminal judgment is not always needed to impose a ban on conducting business activity. Sometimes it is enough that a management board member, through their own fault, failed to file for the company’s bankruptcy on time. The Bankruptcy Law also provides for several other situations of this kind. The result may be a ban on running a business and on sitting on the governing bodies of companies for a period of from one year to even 10 years.
When can the court impose the ban and what does it cover?
It can be said that everything starts with the company’s insolvency, that is, from the moment it stops paying its debts or when its debts exceed the value of its assets for an extended period. From the day the company became insolvent, the members of the management board have 30 days to file a petition for its bankruptcy with the court. This obligation rests on each member of the management board separately.
A mere delay in filing the bankruptcy petition will, of course, not automatically trigger the sanction of a ban on running a business. The court must establish that the management board member was at fault (Article 373(1) of the Bankruptcy Law). It is therefore the basic condition for a management board member to “qualify” for such a ban. But what does “being at fault” mean in practice? It usually concerns a situation where such a person knew about the company’s financial problems and nevertheless took no action.
It is worth remembering that the consequences of the delay are also taken into account in the decision. This mainly concerns whether the value of the business fell and how much the creditors lost as a result. Courts have already dismissed requests for a ban where the delay in filing the petition did occur, but in reality harmed no one. Imposing the ban is therefore neither automatic nor mandatory: the court may, but does not have to, impose it.
If the court nevertheless decides to impose a ban, it may then last from one year to 10 years. However, the ban will not always concern running one’s own business or a business within a civil-law partnership. It may also relate to holding positions in a company (e.g. on the management board, as a commercial proxy, etc.), a state-owned enterprise, a cooperative, a foundation or an association.
Does the ban threaten only management board members?
No. Although management board members are the most frequent group on whom the ban under Article 373 of the Bankruptcy Law is imposed, they are not the only group.
The ban may also be imposed on:
- a person who was obliged to file a bankruptcy petition but, through their own fault, did not do so on time, e.g. a member of the company’s management board (Article 373(1)(1)),
- a person actually managing the business who significantly contributed to the petition not being filed on time (Article 373(1)(1a)),
- a person who, after bankruptcy was declared, did not hand over or disclose assets, documents, etc., although they were obliged to do so (Article 373(1)(2)),
- a bankrupt who obstructed the bankruptcy proceedings, e.g. by hiding, destroying or encumbering assets (Article 373(1)(3) and (4)),
- an entrepreneur running a business as a natural person who deliberately or through gross negligence caused insolvency (Article 374(1)),
- a person against whom bankruptcy was declared again: either within 5 years of the previous one, or after their debts were discharged in the earlier bankruptcy (Article 373(3)).
Is a prior criminal judgment or the company’s bankruptcy needed for the ban to be imposed?
No. A case on a ban is not criminal proceedings, and the ban also does not have to be connected with bankruptcy proceedings. A case on a ban on conducting business is an entirely separate procedure before the district court, in the commercial division. The court decides it by an order after holding a hearing.
Interestingly, declaring the bankruptcy of the company in which the person held a management function is not required for the ban to be imposed. However, in practice, the ban is ordered by the court that would be competent to hear the company’s bankruptcy case.
It is also worth knowing that if a creditor has already filed a request for a ban, and the company pays the debt during the hearing, the proceedings continue regardless.
Who can file a request for a ban on conducting business and how much time do they have?
The court never acts of its own motion in matters of imposing a ban on conducting business, that is, it will not initiate such proceedings by itself. To initiate proceedings for a ban, a request from one of the following is needed:
- a creditor
- a trustee in bankruptcy
- a public prosecutor
- a court supervisor
- a compulsory administrator
- the President of the Office of Competition and Consumer Protection (UOKiK)
- the Polish Financial Supervision Authority (KNF).
In practice, it is of course most often the creditor who does so, given that it is the creditor who may be directly harmed by the actions of the management board member.
The time limit for filing the request for a ban is also important; it is 1 year or 3 years, depending on the reason for filing such a request. So:
1) 1-year limit – from the declaration of the company’s bankruptcy, from the dismissal of the bankruptcy petition, or from the conclusion or discontinuation of the bankruptcy proceedings;
2) 3-year limit – if nobody filed a bankruptcy petition; the limit is counted from the day on which the state of insolvency ended, or from the day on which the person ceased to be obliged to file the petition (e.g. left the management board).
It must therefore be remembered that leaving the management board does not protect against the ban, because the request can be filed even 3 years later.
The author of the article is legal assistant Zofia Baurska
