When is the director responsible for repaying the member's loan?
Dr Enikõ Vida
by Dr Enikõ Vida
It is an important rule that the company director is obliged to take into account the interests of creditors in the event of insolvency.
In a specific legal case, the question arose as to whether the repayment of the member's loan would result in a decrease in the assets of the liquidated company.
In this case, the creditor emphasised that the loan granted to the debtor company became part of the debtor's assets. Since at the time of the repayment of the member’s loan, the debtor's tax account was overdrawn, there were no company assets that could be used to satisfy the claims of external creditors when the company repaid the member’s loan.
§ 33/A of the Bankruptcy Act regulates the liability of the director for damages, and stipulates two main different cases.
The first case aims to ensure the protection of active assets that cover creditor claims, and to sanction any behaviour of the director which results in the reduction of these assets and disregards the interests of creditors.
In the second case stipulated in the above-mentioned paragraph of the Bankruptcy Act, the director's responsibility can be established if their behaviour prevents the full satisfaction of creditors’ demands for reasons other than the reduction of active assets under the threat of insolvency.
Other such reasons include, for example, taking on obligations which burden the debtor, taking guarantees, and accumulating debts; and they also include the failure to fulfil any obligations defined by law regarding the prevention of environmental damages.
Can the repayment of the member's loan be regarded as action which reduces active assets, or as some other activity which prevents the full satisfaction of creditors’ claims. This distinction is important, because if this is not specified precisely in the legal action, the claim can easily be rejected.
The Curia confirmed in this legal case that the action taken by the director in the situation of threatening insolvency – whereby he ordered the repayment of the member's loan previously granted to the debtor – did reduce the debtor's funds, i.e. its current assets, and thus resulted in the reduction of the debtor's assets. In consequence, his responsibility for the decrease in the company’s assets was established.
Dr Enikő Vida graduated in 2006. She speaks Hungarian, English and German, and her primary areas of practice are bankruptcy and liquidation, enforcement law, labour law and litigation. Contact Enikő.
Kovács Réti Szegheõ Attorneys at Law, established in 1992, is one of the oldest independent Hungarian law firms. It is active in Hungarian, English, German and Italian and operates over a wide spectrum within the fields of civil and business law, for both domestic and international clients. Kovács Réti Szegheő Attorneys-at-Law has gained immersive experience in the fields of corporate law, mergers and acquisitions, construction law, real estate law, securities law, bankruptcy law, labour and employment, competition law and intellectual property law.
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