Do restructuring or insolvency proceedings have the effect of releasing directors and other stakeholders from liability for previous actions and decisions?

Restructuring & Insolvency

Australia Small Flag Australia

A director or officer of a company may be liable under the Corporations Act for civil and criminal penalties or to compensate the company if the company incurs a debt while insolvent (insolvent trading). Directors and officers may also attract liability for breaching their statutory duties of reasonable care and diligence in the exercise of their powers and to act in good faith and for a proper purpose. Statutory liability may also be imposed where directors or officers improperly use their position to gain an advantage for themselves or cause detriment to the company.

In some situations directors may become personally liable for unremitted amounts of income tax or GST. The Commissioner of Taxation must give 14 days’ notice to the directors setting out the details of the unpaid amount and the penalty. Directors may avoid a penalty if the company pays the unremitted amount, the company enters into an agreement relating to the unremitted amount, an administrator is appointed or the company goes into liquidation. The courts maintain a general discretion under the Corporations Act to excuse directors from liability in some circumstances if they can be shown to have acted honestly and reasonably.

The terms of a scheme of arrangement and a DOCA can incorporate releases from liability for directors and other stakeholders.

Cayman Islands Small Flag Cayman Islands

No, to the extent they exist, such liabilities will continue until the date of dissolution of the company.

Switzerland Small Flag Switzerland

No. Quite to the contrary, there is an increased likelihood that director's liability claims are scrutinized in an insolvency context. That said, such claims will typically not be pursued where a restructuring has been achieved although no formal release will occur.

Germany Small Flag Germany

Restructuring or insolvency proceedings do not have the effect of releasing directors and other stakeholders from liability for previous actions and decisions.

However, claims of the creditors for damages suffered jointly by them due to a reduction of the insolvency estate before or after the opening of the insolvency proceedings (‘collective damage’) may, during the insolvency proceedings, be asserted only by the insolvency administrator (Sec. 92 Insolvency Code).

Even in an insolvency plan, the liability of directors towards their company for breaching their duties cannot be waived (Sec. 225a(3) Insolvency Act, Sec. 93 Stock Corporations Act, Sec. 43(3) with 9b(1) Limited Liability Companies Act).

Updated: March 14, 2017