Subsidiary Liability

One of the most negative and, therefore, undesirable consequences of opening a bankruptcy procedure for a debtor may be bringing to subsidiary liability of persons controlling the debtor (hereinafter - PCD).

This mechanism existed for a long time, but in fact was not applied, and only in the last three years due to the simplification of this procedure there was a sharp increase in cases of successful prosecution of persons.

What is the current situation?

Subsidiary liability implies the possibility of collecting the debt not from the debtor company, but from other persons controlling it, whose actions led the company to insolvency.

The list of individuals who are personally liable for the company's debts has expanded from CEOs (who can often be nominal and have nothing to collect from them) to a wide range of people, which now includes any person who had the opportunity to influence the company's actions within 3 years before signs of bankruptcy appear.

A prerequisite for the recognition of a person as a PCD for prosecution is:

-       the ability to give binding instructions to the debtor

or

-       otherwise determine the actions of the debtor, including performance of transactions and determination of their conditions.

It turns out that the risk of responsibility for the actions of the company is now borne not only by the managing persons (director and founders), but also by any employees, relatives, interested parties and third parties, if it is proved in court that they took a significant part in the management of the debtor company and received benefit from it.

But being a PCD is not enough to make you pay the company's debts. The insolvency practitioner who primarily deals with this procedure in court must provide the court with evidence confirming:

-       a causal relationship between the actions (inaction) of a specific person who meets the characteristics of the PCD, and the impossibility of repaying creditors' claims;

-       that the PCD did not fulfill the obligation to timely file a petition on the debtor's insolvency;

-       a causal relationship between the late transfer of documents requested by the arbitration manager and the difficulties encountered in the timely formation of the debtor's bankruptcy estate.

In turn, the person who is being held liable has the right to refer to objective external factors (such as the economic crisis, significant changes in market conditions, natural disasters and other events of this nature) in order to prove that there is no connection between their actions and the bankruptcy of the company. Another factor that can exempt the PCD from liability is the good faith of this person. For example, if a person is able to show that he\she has taken all the actions to improve the financial situation of the company, entered into transactions that make economic sense for the company, timely paid salaries to employees and did not miss the payment of mandatory payments, then the chances that the court will at least reduce the amount of liability. or even release from responsibility - significantly increase.

The possibility of bringing persons to subsidiary liability in terms of a bankruptcy case will always be the most effective way to actually collect debt, and this method should be used as efficiently as possible.

TEAM lawyers have repeatedly conducted similar cases both on the creditors’ side and on the debtors’ side, and are always ready to provide you with qualified assistance and protect your interests in court!