1. What are the key topics that boards should focus on to ensure proper discharge of their duties as directors, as their businesses return to work following a lockdown?
A management board must ensure that the ordinary shareholders’ meeting takes place on time (the statutory deadline was extended by three months) and that the resolution on granting discharge to board members for the performance of their duties is adopted at that meeting.
Also, the board must ensure that the company is able to pay its debts and that there are no grounds for filing a bankruptcy motion as explained in the questions on restructuring below.
2. Should boards adopt particular governance practices in this context?
A management board that acts as an employer must take into consideration all the guidelines described in detail in the Table B Points 1-2 of these FAQ.
The board must also to ensure both the proper operation of the company as far as is possible, and communication with third parties. No particular corporate governance practice are required, but boards should be more flexible and adjust their operation in the current situation.
3. To what extent are boards being encouraged to take into account corporate purpose and values in the context of COVID-19 and a return to work?
A management board is responsible for any damage caused to the company due to any act or omission contrary to the provisions of law or the articles of association (liability by fault).
As such, with regard to COVID-19, the board must ensure that the company properly introduces and observes all the restrictions prescribed by the government, and ensure that all safety rules are properly applied before employees return to work.
4. Your company is facing liquidity issues as a result of COVID-19:
a. What are the repercussions for continuing to operate your company?
The directors of an insolvent company are obliged to file for bankruptcy if either the illiquidity test or over-indebtedness test is satisfied.
The balance sheet test (over-indebtedness test) is met when the company is over-indebted for 24 months (when the excess of liabilities over assets has persisted for a continuous period of 24 months). After that period, the directors have 30 days to file for bankruptcy or for the opening of restructuring proceedings.
The cashflow insolvency test (illiquidity test) is met when the company is unable to pay its obligations when they become due. As soon as this situation arises, the directors have 30 days to file for bankruptcy or for the start of restructuring proceedings.
If directors fail to file on time, they may suffer civil consequences (i.e. be ordered to pay damages), economic consequences (i.e. be banned from conducting business activity), tax liability, and even criminal liability.
b. Do you have to file for insolvency if your company cannot pay all its debts as they fall due?
The statutory deadline to file for bankruptcy is suspended until the day on which the epidemic emergency (epidemiological threat) or the state of COVID-19 epidemic ends. This suspension only benefits debtors that became insolvent during the officially declared epidemic threat or the officially declared epidemic, and whose insolvency was caused by COVID-19.
The suspension does not apply to debtors that became insolvent for reasons not related to COVID-19.
c. Are there any steps that should be taken to minimise the risk of your actions as director being challenged?
Directors are released from liability if:
- they file a bankruptcy petition on time; or
- if they file an application for the opening of restructuring proceedings and the court initiates the proceedings within 30 days of the occurrence of the statutory prerequisites of bankruptcy (state of insolvency).
d. Will your company be wound up if you fail to make payments when due?
The company cannot be compulsorily wound up if it fails to make payments when they fall due. It can be wound up voluntarily or as a result of bankruptcy proceedings.