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Director and parent company liability

Liability

Under what circumstances can a director or parent company be held liable for a company’s insolvency?

A director or board of directors can be held liable for a company’s insolvency if:

  • it voted or decided about a matter concerning the company’s properties and assets knowing that a conflict of interests existed;
  • it intentionally favours a shareholder or group of shareholders, thereby injuring or prejudicing other shareholders;
  • it obtains an economic benefit for itself or a third party (including shareholders) without a legitimate cause and because of its position or job;
  • it generates, spreads, publishes, provides or orders information knowing that it is false;
  • it orders or encourages company operations not to be registered;
  • it modifies or orders the modification of the registries to hide the true nature of the operations, affecting the company’s statement of account;
  • it orders or allows the registration of false data in the company’s accountancy;
  • it destroys, modifies or orders the modification of the company’s accountancy; or
  • it modifies or orders the modification of the active or passive accounts of the company or the agreements subscribed by the company conditions, as well as registering non-existent company expenses.

Such conduct can be reported only by the insolvent company, not the creditors or a third party. The penalty is limited to the payment of damages in favour of the company.

Defences

What defences are available to a liable director or parent company?

The following defences are available to a liable director or parent company:

  • proof that it has complied with the legal requirements or company bylaws;
  • proof that it decided or voted in the board of directors sessions based on information from relevant employees, an external auditor or independent expert with unquestionable credibility;
  • proof that it has made the most reasonable decision at the time or that the possible damage to the company’s properties and assets was not foreseeable; and
  • proof that it has complied with an agreement made at a shareholders’ meeting.

Due diligence

What due diligence should be conducted to limit liability?

When the insolvency proceeding is filed, the Federal Institute of Commercial Insolvency must appoint an examiner to conduct due diligence of all the company’s documents, accountancy and contracts in order to determine whether the company should be declared insolvent.

Depending on the circumstances, the liability of the director or board or directors can be limited to the damages caused by the acts or omissions of the directors. 

Within the liability action, the director or board of directors held responsible may offer as evidence a due diligence of the company’s documents, accountancy and contracts.

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