The creditor shows the company’s debt and that enforcement was ineffective. It is then for the board member to prove that the bankruptcy petition was filed in due time, or that another statutory ground for release from liability applies.
As a rule a limited liability company is liable for its debts with its own assets. That does not mean, however, that a board member is always safe. If enforcement against the company proves ineffective, the creditor may reach into the assets of the board members.
That is what Article 299 of the Commercial Companies Code is about. The creditor does not have to prove from the outset that the board ran the company badly. Above all they have to show two things: that the company’s obligation exists, and that enforcement against it was ineffective. Only then does the burden of defence pass to the board member. Under Article 299 § 1 CCC, if enforcement against the company proves ineffective, the board members are jointly and severally liable for its obligations.
Step 1. Check whether enforcement against the company was ineffective
An unpaid invoice alone is not enough to sue a board member. First you need a basis for showing that the company did not pay and that enforcement against its assets produced no result.
Most often this will be the bailiff’s decision discontinuing enforcement on the ground that it was ineffective. In practice other documents may matter too, but it is precisely the ineffectiveness of enforcement that is the starting point for board liability.
For the creditor this is an important simplification. They do not have to begin by litigating whether the board was at fault. It is enough to show that the company owes the debt and that enforcement against it did not produce payment.
Step 2. Establish who was on the board when the debt arose
Liability under Article 299 CCC applies to members of the management board of a limited liability company. It does not extend to shareholders as such, to attorneys-in-fact, to commercial proxies, or to people who in fact helped run the business but were not board members.
You have to check who held office at the time the obligation existed and when the company should have been reacting to its worsening financial position. What matters are the extracts from the National Court Register (KRS), the resolutions appointing and dismissing board members, resignations and the dates disclosed in the register.
Being struck from the KRS does not always close the subject. What counts is the actual period of holding office, not merely the date later visible in the register.
Step 3. Check whether the board member has an effective defence
Article 299 CCC is strict, but it does not operate automatically. A board member can escape liability by showing one of the statutory grounds.
First, that a bankruptcy petition was filed in due time, or that a decision was issued opening restructuring proceedings, approving an arrangement in arrangement-approval proceedings, or opening arrangement proceedings.
Second, that the failure to file the bankruptcy petition was not their fault.
Third, that despite the failure to file the petition and despite the absence of restructuring proceedings, the creditor suffered no loss. These grounds follow from Article 299 § 2 CCC.
It is the board member who has to prove them. In practice this means producing the company’s financial documents, the dates on which insolvency arose, the steps the board took, and whether the bankruptcy petition was filed on time.
Step 4. Do not confuse board liability with company liability
A claim against a board member is not simply a second identical claim over an invoice. It is separate liability, which arises only once the company fails to pay and enforcement against it proves ineffective.
For the creditor this means that the documents against the company have to be put in order first: the invoice, the contract, the order for payment or the judgment, the enforcement clause and the enforcement documents. Only then is it assessed whether suing a board member is possible.
For the board member it means something else. The defence does not usually consist of simply asserting that “the company had no money”. You have to show when the company became insolvent, what steps were taken, and why there is no basis for personal liability.
What is worth preparing
If you are the creditor, gather the documents evidencing the company’s debt: the contract, the invoices, the correspondence, the order for payment or the judgment, the enforcement clause and the bailiff’s decision discontinuing enforcement. A current and a historical KRS extract will also be needed, to establish the composition of the board.
If you are a board member, collect the company’s financial documents, the financial statements, the balance sheets, the correspondence with the accountants, the documents concerning the loss of liquidity, and any bankruptcy petition or restructuring documents. In a case like this the dates are often more important than general explanations.
In short
Article 299 CCC does not mean that a board member is automatically liable for every company debt. Liability arises where enforcement against the company is ineffective and the board member fails to establish one of the statutory defences.
The creditor shows the company’s debt and the ineffectiveness of enforcement. The board member has to prove that the bankruptcy petition was filed in due time, that the failure to file it was not their fault, or that the creditor suffered no loss in spite of it.
Cases like these are usually decided not by general declarations but by documents and dates - when the debt arose, when the company stopped paying, when the bankruptcy petition should have been filed, and who was on the board at that time.
This article is for information only and does not constitute legal advice. Assessing a specific case requires reviewing the documents.