Are you the administrator of a company? Find out what to do in order to avoid paying with your personal assets
Bankruptcy processes which have started with the economic recession in 2008-2009 are now coming to an end. As expected, most creditors have not received their money after the liquidation of the debtor companies. As a last resort, debt recovery is attempted by attracting personal liability of the former administrators.
Being a member of the management or of the supervisory bodies of a company (i.e.: director, administrator, auditor) involves the most diverse responsibilities. Due to the harsh economic times we are going through many companies entered the insolvency procedure, governed by Law 85/2006 and during this procedure, quite often, the manager must justify the reasons that brought the company in this situation.
There are people responsible for verifying and determining the reasons which led the company into insolvency and also, able to hold responsible the people who are guilty of bringing the company to insolvency.
In the following, we will focus on the personal liability of the members of management and/or supervision, governed by art. 138 of Law 85/2006.
First of all, I consider necessary to clarify the concept of “personal liability”. In practice it means that members of the management or supervisory bodies respond with their own assets (such as: bank accounts, movable assets and privately owned assets) to cover totally/partially the debts of the company that they have administrated/supervised.
The law provides a clear and exhaustive list of conditions that must be met in order to be able to request for the personal liability of the administrator.
It is important that you, for example, as administrator, to know the answers to some of these questions in order to be able to protect and defend yourself:
1. Who are the people able to request for personal liability of the administrator?
2. Under what circumstances may the appropriate persons request the personal liability of the administrator?
3. What are the reasons why appropriate persons request the personal liability of the administrator?
4. What are the risks that you are exposed to as administrator if you required to answer with your own assets?
5. What is the time frame in which this request can be filed?
People who are entitled to request the personal liability of the administrator are: the judicial administrator, the liquidator, the chairman of the creditor’s committee, a creditor appointed by the creditor’s assembly or a creditor that holds more than 50% of the claims submitted to the statement of affaires.
In order for the judicial administrator or liquidator to be able to file this request it is necessary that the administrator of the company is identified as the person responsible for the occurrence of the insolvency of the company through the report that includes the causes, circumstances and persons responsible for the occurrence of the insolvency state, drafted according to the art. 59, paragraph 1 of the law.
Even if through the report mentioned above, the administrator is not considered responsible for the occurrence of the insolvency of the company, the chairman of the creditor’s committee, a creditor appointed by the creditor’s assembly or the creditor that holds more than 50% of the claims submitted to the statement of affaires, may submit claims to attract the personal liability of the administrator.
The reasons for which a claim can be formulated are listed exhaustively by the law, not being left to the subjective assessment of shareholders, which means that these are the only cases for which an administrator will have to respond with his own assets in order to cover the liability of the insolvent company.
These are the things the administrator should do in order to be held accountable:
a) Use goods or credits of the company in his own gain or that of another person;
b) Do commerce for personal interest but with covering of the company;
c) Order, for personal interest, the continuation of an activity that led, manifestly, the company to insolvency;
d) Provide fictive bookkeeping, made to disappear some accounting documents or not keeping the accountancy in accordance with the law;
e) Embezzle or conceal a part of the company’s assets or increase fictitiously the company’s liabilities;
f) Use ruinous means to procure funds for the company, in order to delay insolvency;
g) In the month previous to the insolvency, pay or order a future payment to a preferential creditor at the expense of other creditors.
As you can see, these situations are clearly described by law, in art. 138, paragraph 1. However, in practice, there are claims that do not meet these criteria completely. To be clear, I will take for example the letter c) from above. Here is stated “the continuation of an activity that led, manifestly, the company to insolvency”. Note, however, continued activity is not enough to attract the personal liability of the administrator, but it is absolutely necessary to prove also the personal interest of the administrator in continuing the business activity that led, manifestly the company to insolvency.
Regarding the deed recorded at letter g), the law provides also an exception, namely whether the payments made preferentially to a particular creditor was performed in good faith, in the execution of an agreement described in the same article in paragraph 1.
Also, the person filing the complaint in order to attract the personal liability of the administrator shall prove the causal link between the acts (those mentioned above in letters a-g) and insolvency, the guilt of the administrator (this cannot be only presumed) and the damage to the creditor.
Fulfilling all these criteria is essential in order for the administrator to be put in a position to respond with his own assets.
The period in which such a claim can be filed is 3 years from the date when it was known or should have been known who is the person responsible for the insolvency of the company.
The complaint for attracting the personal liability of the administrator will be judged in a separate file and if it is allowed by the judge you risk seizing of your assets and to be foreclosed.