In response to the crisis caused by the COVID-19 disease epidemic, the so-called Lex Covid Justice was enacted, followed by Lex Covid Justice II, which introduced a number of significant changes, including in the field of insolvency law. We have discussed these laws in detail in previous articles available here and here. One of the emergency measures was the suspension of the obligation to file a debtor’s insolvency petition in the event of bankruptcy.
In this context, please note that as of 1 July 2021, the obligation of entrepreneurs and companies to file a debtor’s insolvency petition is renewed in full, including the potential liability of the management members under Section 98 et seq. of the Insolvency Act for damage if they file an insolvency petition late.
The Insolvency Act provides for two forms of bankruptcy of a debtor - insolvency and over-indebtedness:
The law provides that the members of the statutory body of a debtor that is bankrupt must file an insolvency petition without undue delay after they became aware, or with due diligence should have become aware, of the debtor’s bankruptcy. That concept can be interpreted, in accordance with the case-law, as a short time limit which presupposes a very prompt reaction. The statutory body should monitor the company’s situation on an ongoing basis as part of its duty of due care and diligence. The most recent information on the company’s financial situation will currently be available primarily from the 2020 financial statements or interim financial reporting. It is therefore a fundamental obligation to check carefully whether the company does not meet the criteria of a bankruptcy.
The debtor’s management members must act with due care and diligence; therefore, they must do everything necessary and reasonably foreseeable to avoid the bankruptcy of the company. In the event that an evaluation of the financial situation reveals signs of bankruptcy, the management members must immediately take steps to avert bankruptcy or proceed with filing an insolvency petition. In particular, the management members should:
Pursuant to Section 99 of the Insolvency Act, a person who has failed to file an insolvency petition on time shall be liable to creditors for damage or other harm caused to them by the breach of this obligation. This is personal liability that may be asserted against the debtor’s management members by the debtor’s creditors.
Liability for damage or other harm shall be discharged only if a management member proves that the breach of the obligation to file an insolvency petition did not affect the satisfaction of claims in the insolvency proceedings or if the person concerned failed to fulfil this obligation due to facts which occurred independently of his will (external circumstances) and which he could not have avoided even if he had made all the efforts that could reasonably be required of him. However, these grounds for the exclusion of liability have been interpreted restrictively in judicial practice.
HAVEL & PARTNERS provides comprehensive legal services in connection with informal restructurings of distressed companies and representation in insolvency proceedings. In this area, we primarily prepare, in cooperation with economic consultants, plans for informal restructuring of financial exposure or protect our clients from legal risks related to bankruptcy resolution.
Under the motto “Financing from A to Z” we connect the financing practice with the restructuring and insolvency practice. For more information, please see here.