Managing directors' liability – an overview of recent changes in the Czech Republic

Quick read

The most recent amendment to the Act on Commercial Companies and Cooperatives, effective since 1 January 2021, has brought several changes to the liability of managing directors (MDs), which we outline below.

Salary and benefits

The time period within which an MD is obliged to return any salary and benefits received from an insolvent company has been altered.

Under the previous legislation, salary and other benefits received two years before a company was declared insolvent by the court were paid into the insolvent estate if an MD's negligence led to insolvency. This allowed MDs to purposely delay the court’s decision to avoid or reduce this obligation.

The two-year period now counts from the initial filing by the company or creditor, which means that MDs can no longer gain an advantage from delaying the court’s decision.

Debt liability

The amendment has changed some aspects of MDs' liability for the debts of an insolvent company. Negligent MDs are now only liable if no corporate restructuring takes place, rather than in all cases of insolvency.

Furthermore, before the amendment, an MD who acted as a guarantor could be sued directly by creditors – which could lead to an unfair advantage for certain creditors – which is no longer the case. MDs are now liable directly to the bankrupt company, and liability is settled exclusively as part of the insolvency proceedings, ensuring that creditors will be satisfied on equal terms.