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Directors liabilities and wrongful trading

Locations

United Kingdom

Experts in Fieldfisher regularly advise directors on their potential personal exposure when their companies are entering a period of financial distress or uncertainty.  Many governments have decided to amend rules during the COVID19 pandemic to lessen that burden.  The table below summarises the position for directors prior to any COVID19 amendments, and any changes the respective government has made.  It should be remembered that the governing rules for a director may not be those of the jurisdiction in which the company is registered, but could be the country in which it has its centre of operations. The below table is accurate at time of posting.
 
Jurisdiction Pre-COVID19   During COVID19
Belgium A director could be liable for additional debt incurred by the company from the time they knew or ought to have known that the company could not avoid bankruptcy.
 
A director could be liable should he fails to declare the company's bankruptcy when the applicable conditions are met (insolvency and loss of confidence by the creditors) .
 
  No relaxation confirmed (yet) but the Government has announced special measures allowing undertakings to benefit from a moratorium when they are in financial distress. This moratorium would suspend enforcement measures by creditors.
England & Wales A director could be liable for additional debt incurred by the company from the time they knew or ought to have known that the company could not avoid insolvent liquidation or administration.
 
  Although the precise wording has not yet been announced, these wrongful trading rules will be 'relaxed' for (at least) the period 1 March to 1 June 2020.
France In the case of an excess of liabilities over assets, the court may, in instances where management fault has contributed to the excess of liabilities over assets, decide that the debts of the legal entity will be borne, in whole or in part, by all or some of the de jure or de facto managers. Nevertheless, in cases of a simple negligence, they cannot be held responsible.
 
Not to file for insolvency within the 45 days following the cessation of payments of the company could constitute a fault.  
 
  There has been a relaxation of the rules.  Except in the event of fraud, up to a period of 3 months after the expiration of the state of the COVID19 emergency, the state of cessation of payment will be assessed as at 12 March 2020
 
Germany A director could be liable for additional debt incurred by the company from the time the company should have filed for insolvency, i.e. when the company is illiquid or over-indebted.
 
  The company does not have to file for insolvency until 30 September 2020 unless the insolvency is not due to the COVID19 pandemic or if there is no perspective that the illiquidity can be remedied. This will be assumed if the company was solvent on 31 December 2019.
Ireland Directors may be exposed to personal liability for debts of a company from the time they knew or ought to have known that the company was incurring debts that could not be paid.   Submissions are still being made by stakeholders to the government, but it is expected that for the period of Covid19, directors will not be exposed to personal liability for company debt.
 
Italy Directors must always pay attention to "business continuity", i.e. they must verify that the conditions are in place to make the payments due with a 6-month forecast assessment.
If they realise that continuity is lacking (and they are required to organize the company so that there are suitable means of detection), they must convene the shareholders to reconstitute the share capital.
In case of no continuity they cannot - in any case - do anything other than ordinary management. If shareholders do not reconstitute the share capital they have to go in front of the Court to declare bankruptcy.
If they do otherwise, they are responsible.
 
  Suspension of hearings and civil and criminal proceedings until 15 April 2020, except for urgent proceedings and hearings. In insolvency proceedings, many hearings were confirmed because they were considered urgent and not to be postponed.
Decree Law no. 9 of 2 March 2020, postpone to February 2021 the obligation to report qualified individuals and statutory auditors within the early warning tools (this is part of a global reform now on going in Italy that enter into force in August 2020).
Luxembourg A director may potentially be held liable for any increased debt of the company in the case of a late filing for bankruptcy (or absence thereof) if it is held that it knew or should have known that the situation of the company was irremediably compromised and did not take appropriate action.
 
  The otherwise applicable limitation period for filing for bankruptcy has been suspended in Luxembourg due to the coronavirus outbreak. Any applicable delays will resume (where they were frozen) when the suspension will be lifted.
Netherlands A director could be liable for additional debt incurred by the company from the time they knew or ought to have known that the company could not avoid insolvent liquidation.   No relaxation envisaged (yet).
Spain A Director would be liable for not filing on time for insolvency since he is aware or it should have known (2 month period). Liability may extend to all the estate debts, depending on the circumstances.   The 2-month period has been suspended and, thus, there is a stay period whilst Directors do not have to file for insolvency. There is a mere suspension not a reset, this is if when the suspension entered into force there was just one day left for the 2-month period, when the suspension is released, they will have just one day to file for insolvency.
 
 
As you will appreciate, the table above is a simplified summary, and advice should be sought on any specific issues.
 

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