Personal Liability of Managing Directors for Late Insolvency Filings

Managers often perceive insolvency as a problem of the company rather than a personal risk. Czech law, however, takes a stricter view. Among others, managing directors must monitor the company’s financial situation and file for insolvency without undue delay once the company becomes insolvent. If they fail to do so, they may be personally liable to creditors. This was recently confirmed and further clarified by the Czech Supreme Court.

A stricter view on inaction

In practice, insolvency filings are often delayed due to hopes of recovery, ongoing negotiations or simple inertia. The Supreme Court made it clear that such inaction carries significant legal risk. The Supreme Court rejected the argument that managing directors can avoid liability simply because no insolvency proceedings were ever opened. It emphasised that the absence of insolvency proceedings may itself be the result of a breach of duty.

A key takeaway from the decision is that creditors may claim damages even if no insolvency proceedings took place at all. If proceedings were not initiated because managing directors failed to file in time, this cannot benefit them. This significantly broadens potential exposure. Even companies that are dissolved through liquidation without entering formal insolvency proceedings may leave their former managing directors open to claims.

The Supreme Court thus followed its established case law, confirming it while applying it to a new real‑world scenario. An open question left by the decision is how to determine the number of damages. Where the statutory formula based on the difference between the established and satisfied claim cannot be applied mechanically, the amount of damages will need to be assessed by other means.

What this means for business practice

The decision highlights the importance of early and proactive action by managing directors and board members. The critical moment is not when insolvency becomes obvious, but when it could have been identified with reasonable care.

In practice, delaying action tends to increase risk rather than mitigate it. Companies should therefore ensure effective financial monitoring and seek professional advice as soon as warning signs appear.

By Mgr. Bc. Karolína Szturc

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