The timely opening of restructuring proceedings and remedial action relieves the board of personal liability for liabilities incurred in the company's crisis operations.
In the event of a company's insolvency and the board's failure to fulfill its statutory obligations to file a bankruptcy petition, board members are liable for its obligations. The law regulates the liability of company boards towards their creditors in this way. The salvation for companies from bankruptcy is to open a bankruptcy petition at the right time. restructuring proceedings, aimed at exiting the crisis situation and concluding an arrangement with creditors. At the same time, such remedial actions release the management board from personal liability for the liabilities that have arisen.
Unexpected disruptions affecting the emergence of a crisis situation in a company, many times lead to a phase of acute crisis, when the anti-crisis measures taken by management have already failed and depleted resources threaten continued existence.
– This is a breakthrough stage in the life cycle of a company, where the selection of appropriate management tools determines survival and further development. In an insolvency crisis, the duties and responsibility of management boards towards the company's creditors also become an important issue. In a situation of a financial crisis of a company, leading to its insolvency, the culpable failure of the management board to submit bankruptcy petition or failure to initiate restructuring proceedings, which would give a chance to emerge from the crisis, results in the personal liability of the management board – emphasizes Małgorzata Anisimowicz, President of the Management Board of PMR Restrukturyzacje.
This liability is absolute, is not limited in amount, cannot be excluded on the basis of a shareholders' agreement and jointly and severally covers all members of the management board (Art. 299 KSH, § 1,2). The source of this liability is also irrelevant.
The Restructuring Law in force since 1 January 2016, saving the company from bankruptcy and equal opportunities creditors, allows for the development of an effective recovery plan that restores the company's ability to function and leads to an arrangement with creditors. - It thus constitutes, when its conditions are met, a prerequisite for the exclusion of the management from liability," says Malgorzata Anisimowicz.
Taking into account the provisions of the Restructuring Law, in the case of opting for the corporate recovery option, this exemption applies when:
- In due time, a decision was made to open the proceedings restructuring or approval of the arrangement in the proceedings for the approval of the arrangement, where the formulation of the appropriate time is crucial here, because it is not enough to merely open the proceedings, but the company must also have sufficient assets to ensure at least partial satisfaction of the receivables.
- The failure to make the application was through no fault of the board member, which, in the face of the law, is difficult to argue in his favour. After all, by deciding to accept this function, he or she is at the same time committing to the due diligence of his or her activities and guaranteeing the required skills. All members are jointly and severally liable, so the type of division or division supervised in the organisation does not absolve them from liability either.
- Despite the failure to file an application and the failure to issue an order to open restructuring proceedings or to approve an arrangement, the creditor has not suffered a loss.
It is also important to note that when a bankruptcy application and a restructuring application are filed, the restructuring application is dealt with first and the bankruptcy application is stayed pending a court ruling on the restructuring application. The opening of restructuring proceedings therefore protects against vindication, allows time for the development and implementation of a restructuring plan that often takes into account not only corrective measures, but also profound strategic changes for many areas of the business, strengthening efficiency and adapting the company to the conditions of its environment, giving time to obtain financing and support for activities by restructuring advisors.
The company can conduct the necessary audit, strategic analysis of all areas of activity and the environment in which it operates, create a project of remedial actions, prepare a comprehensive restructuring plan, develop a development strategy and arrangement proposals, obtain the aforementioned financing, develop a communication system ensuring transparency of information for creditors, introduce and monitor activities on an ongoing basis. - Therefore, do everything that is necessary for productive functioning, which, when carried out in the earlier stages of the crisis, gives almost certainty of success and leaving the debtor's own management, i.e. eliminating the risk of appointing a new administrator, appropriate for remedial proceedings - says Małgorzata Anisimowicz - president PMR Restructuring Management Board ARE
In her opinion, the law specifies the circumstances and scope of personal liability of the management board towards its creditors, but also provides procedures and tools for reaching an agreement through remedial actions in the crisis situation that satisfy both parties. The most important thing is therefore the awareness of the management boards about the possibilities of restructuring processes and considering restructuring as an anti-bankruptcy action and the resulting consequences, at the earliest possible stage of the threat of insolvency.
14 November 2019:" The Board is personally responsible
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