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News

Liability of managing directors who no longer hold office

1.08.2017
Company: bnt attorneys-at-law s.r.o.

The Czech Supreme Court found that managing directors who have been recalled continue to be liable for legal transactions which they take on behalf of the company after having been recalled, by the same standards as apply during their time in office. In this respect, it is of no concern whether or not the affected managing director knew of the fact that they had been recalled. The same legal consequences apply after a managing director has stepped down from his or her office.

In its judgment of 29 March 2017 (ref. No. 29 Cdo 4095/2016), the Czech Supreme Court took position on the issue of what kind of liability standards should apply to managing directors who engage in legal transactions on behalf of the company even after having been removed from office.

The court found that in those cases, the managing director is not relieved from liability. Managing directors who have been recalled but still act in legal dealings as if they were the rightful managing director of the company and engage in legal transactions on its behalf thus are liable vis-a-vis the company for the damage thus caused, by the same standards as would have applied during their term in office, to the extent that the damage is attributable to their breach of the duty of due care of a proper businessperson.

In the view of the court, in determining the liability in such cases, it is of no concern whether the managing director knew of his or her recall at the time at which he or she engaged in the given transaction (whereas it is indeed possible for them to be in the dark with respect to their own recall, which can be effected without their knowledge), or whether they knowingly and willfully ignored the fact. Consequently, the judgment also applies mutatis mutandis to cases in which managing directors themselves step down from their office. In this sense, a managing director cannot avoid liability by invoking their recall from office. Rather, the relevant aspect is what kind of legal pretense they created (and be it by way of implication) when they presented themselves in legal dealings as managing director in spite of having been recalled from office.

The judgment was based on the legal situation prior to 1 April 2014; however, the factual state of affairs and the interest in effective protection of the company and its creditors are identical so that it is reasonable to expect the court's pronouncements to prevail also under the new laws.

Considering that, in cases of a breach of the duty of due care of a proper businessperson, the Czech Corporations Act applies the same standards of liability to wrongdoing by authorized clerks (prokuristé) and to wrongdoing by managing directors, it is only fair to assume that the Supreme Court ruling also applies to authorized clerks (mutatis mutandis).

Source: Supreme Court judgment of 29 March 2017 (ref. No. 29 Cdo 4095/2016)

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Tags: Law | Finance |

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