Unfortunately, it is not rare that a company becomes insolvent and goes into liquidation. In such cases, it often happens that creditors’ claims are not satisfied.💸

Can the representatives be held liable?

If certain conditions are met, yes.

⚖️ Based on applicable laws, two lawsuits are necessary against a representative (one after the other):

1️⃣ Declaratory judgment lawsuit – The court checks if the representative is liable for the decrease in the company’s assets or the jeopardizing of the satisfaction of creditors’ claims.
2️⃣ Reimbursement lawsuit – If the court finds the representative liable in the first procedure, the court orders the representative to reimburse the losses.💼

👤 And it is not only an official (registered) representative holding a position within a 3-year period prior to liquidation that may be affected! Those controlling things in the background (shadow-directors) can be found liable too.

🔍 Broadly speaking, creditors need to prove three matters in the declaratory judgment lawsuit (i.e., the first procedure):

  • the company was under the threat of insolvency;
  • in this situation, the representative was responsible for decreasing the company’s assets or jeopardized the full satisfaction of the creditors’ claims;
  • the acts or omissions of the representative caused the loss of assets.

📁 Aggravating circumstance: if the representative fails to cooperate with the court-appointed liquidator (i.e., does not hand over documents) or fails to perform reporting (FS) obligations, the burden of proof shifts – and would lie with the representative.⚠️

💡 The court may, in advance, require the representative to make a deposit – prior to deciding upon the liability.

📅 Important deadlines:

  • The declaratory judgment lawsuit can be started during the liquidation process.
  • The reimbursement lawsuit can be started after the effective end of the liquidation, within 5 years.

📬 Preferential stamp duty rules upon filing for a lawsuit: No stamp duty is to be paid when filing for a lawsuit – the court will decide on this at the end.

📚 If you, as a representative, are concerned, or have questions as a creditor, it is recommended to request information about your rights and obligations in time – the liability questions may not only have legal, but serious monetary, consequences as well.