Claim under Article 299 of the Commercial Companies Code – how to effectively defend a board member?

Legal status: 25 March 2026

Cases under Article 299 of the Commercial Companies Code are among the most demanding commercial proceedings. From the creditor's perspective, this provision is a powerful tool for debt recovery when execution against a limited liability company proves unsuccessful. From the perspective of a management board member, on the other hand, it is one of the most serious personal management risks, as it opens the way to accessing private assets.

Art. 299 of the Civil Code does not create absolute liability

In business practice, many simplifications have arisen around Article 299 of the Commercial Companies Code. The most dangerous of these boils down to the belief that if a limited liability company has not paid its debt, and enforcement against it has failed, then a member of the management board essentially has no real room to defend themselves. This approach is incorrect. Liability under Article 299 of the Commercial Companies Code is strict, but not absolute. It is still liability based on specific premises that the creditor must prove, and which the defendant can effectively challenge.

From the perspective of procedural practice, this is fundamentally important. A well-conducted defence does not consist of a general explanation that the company found itself in a difficult situation and that the management acted in good faith. Such arguments, without an adequate evidential structure, usually prove insufficient. The key is to take control of the logic of the entire dispute and to structure the defence in the correct order: first, it must be examined whether the claimant has established the grounds for the claim at all, and only then whether the defendant can be exonerated from liability on the basis of exculpatory premises.

This is what distinguishes an improvident defence from a procedurally mature defence. Section 299 of the Companies Act does not serve to automatically transfer every debt of the company to the members of the management board. It serves to protect the creditor under certain statutory conditions. And if so, each of these conditions should be the subject of a detailed analysis from the very first statement of defence.

In cases concerning Article 299 of the Commercial Companies Code, it is not the person who presents the most emotional narrative who wins, but rather the one who best organises the premises of liability and can prove their own timeline.

First line of defence: break down the rationale on the part of the claimant

The most common mistake in cases under Article 299 of the Companies Act is to move too early into the exoneration defence. The defendant immediately explains why he is not at fault, why the financial situation of the company was complicated or why the corrective measures were reasonable. However, in many cases the earlier question turns out to be much more important: has the creditor proven the prerequisites for liability under art. 299.1 KSH at all?

From a practical point of view, this means that four issues need to be examined in detail: firstly, whether a properly demonstrable obligation of the company exists; secondly, whether the claimant has an appropriate claim against the company; thirdly, whether the enforcement was indeed unsuccessful; and fourthly, whether the defendant can be held liable for the obligation at all, considering the period during which they held a position on the board.

Does the creditor have a valid claim against the company

In practice, it is precisely this element that is sometimes treated too mechanically. The creditor assumes that since they have an unsatisfied claim against the company, the path to suing a board member is wide open. Meanwhile, in many factual scenarios, it is necessary to very carefully examine whether the basis for the claim has been properly demonstrated, whether the title against the company is adequate for the claim being pursued, and whether there are no exceptions that weaken the construction of the lawsuit.

This is particularly important in cases where the company was in liquidation, underwent significant ownership changes, was struck off the register, or a ruling was made against the company after the management board composition had changed. In such cases, the lawsuit under Article 299 of the Commercial Companies Code should be analysed very precisely, as it sometimes happens that a creditor attempts to bypass the stage of reliably demonstrating their claim against the company itself in practice.

Was the execution indeed futile?

The mere mention of an unsuccessful execution is not enough, in itself, to bring the discussion to a close. Of course, in practice, a bailiff's order to discontinue execution is often strong evidence for the claimant, but this does not mean that the defendant cannot challenge this premise. The crucial factor is the actual financial standing of the company and the answer to the question of whether the creditor has indeed lost the ability to satisfy their claim from the company's assets.

The defence should therefore include an analysis of whether, at the time of commencing proceedings or during their course, the company did not possess assets, receivables, claims against contractors, funds from other proceedings, surpluses from settlements, or other assets from which the creditor could have been satisfied. Not one case under Article 299 of the Commercial Companies Code is lost not because the defence was materially weak, but because it was not supported in time by current data regarding the company's assets.

The significance of the closing of the investigation

In matters concerning Article 299 of the Commercial Companies Code, the situation must not be analysed solely historically, as it stood on the date the lawsuit was filed. From a procedural perspective, the state of affairs at the time the pleadings are closed is of great importance. If, in the course of the proceedings, the company has recovered assets, obtained funds from other proceedings, won a significant dispute, or a genuine source of creditor satisfaction has emerged, then the argument of the ineffectiveness of execution may be weakened or completely fail.

This is why professional defence in cases under Art. 299 of the Commercial Companies Code does not end with the analysis of documents attached to the lawsuit. It requires active monitoring of the company's situation until the end of the proceedings. This surprises many defendants, as they assume that only the past situation counts. Meanwhile, an effective defence requires working on what is also happening "here and now".

Whether the defendant is liable for the obligation in question at all

Matters under Article 299 of the Commercial Companies Code often require the separation of several points in time: the conclusion of the contract, the creation of the underlying relationship, the enforceability of the claim, the commencement of proceedings against the company, and the period of service of a specific board member. Creditors and defendants sometimes confuse these dates, which leads to simplifications that can influence the outcome of a dispute.

It happens, of course, that a person was on the board at the time the agreement was concluded, but no longer held the position when the company became insolvent. The opposite also occurs: someone joined the board already in a crisis situation and must defend themselves against the accusation that they did not react quickly enough. In such cases, the mere date of entry or deletion from the National Court Register does not resolve everything, but it constitutes an absolutely fundamental starting point for any defence.

The second line of defence: exoneration under Article 299 § 2 of the Commercial Companies Code

Only when the creditor demonstrates the grounds for liability under Article 299(1) of the Commercial Companies Code does the burden of proof shift to the exoneration stage. The current wording of Article 299(2) of the Commercial Companies Code provides several basic avenues of defence. A management board member can be freed from liability if they demonstrate that a bankruptcy petition was filed in a timely manner, or that restructuring proceedings were opened or a settlement was approved in a timely manner. They can also defend themselves by demonstrating the absence of fault or the absence of damage on the creditor's part.

For many defendants, the most important thing is that these premises are not merely theoretical. In a well-documented case, they can realistically lead to the dismissal of the lawsuit. There is one condition: they must not be treated in a generalised manner. Each of these lines of defence requires a separate logic, a separate evidential construction, and often a separate timeline.

"The right time" is the most important battlefield

Most disputes typically centre on the question of precisely when insolvency occurred and whether the management reacted in a timely manner. This is where company law, insolvency law, management practice, and accounting clash. In a well-managed case, it is not enough to say that the problems were temporary, or that the company was counting on a quick recovery. The court expects specifics.

These concrete examples include: cash flow reports, statements of outstanding liabilities, aged receivables, monthly balance sheets, cash flows, management notes, resolutions, correspondence with accountants and advisors, documents from investor meetings, and records concerning restructuring attempts. It is precisely these materials that allow us to answer the question of whether the difficulties were temporary or already ongoing and qualified.

Litigation experience shows that, in cases under Article 299 of the Companies Act, the court judges much better such a defence that shows the step-by-step logic of the board's actions, rather than a defence built on a general assertion that "the board did what it could". A professional defence must be concrete, dated and documented.

Restructuring as a real form of defence

In the current legal state, restructuring is not an addition to Article 299 of the Commercial Companies Code but one of the statutorily provided avenues of defence. This is very important, as in many business contexts, a rational response to a crisis is not to immediately wind down the company, but to attempt to reorganise and save it. From the perspective of board members, this means that timely and correctly implemented restructuring can become a significant element of their defence.

However, caution must be exercised. Merely declaring that a company has "considered restructuring" does not usually provide sufficient protection. It is crucial to demonstrate a concrete legal effect at the right time. In other words, it is not the argument about a planned restructuring that wins at trial, but the argument about a restructuring actually undertaken and procedurally significant.

No fault: defence possible, but interpreted strictly

In practice, many defendants intuitively resort to the argument that they were not involved in the company's finances, were sidelined by other board members, or did not have full knowledge of the scale of the problems. While such claims may be understandable from a human perspective, they are rarely sufficient from a procedural standpoint. Lack of fault, within the meaning of Article 299 of the Commercial Companies Code, is interpreted restrictively.

This means that the defendant must demonstrate a real, objective obstacle preventing them from taking appropriate action. A mere poor division of duties within the management or internal organisational chaos is usually insufficient. However, if a person was actually deprived of access to information, was ill, was cut off from managing the company's affairs, or held the position for a very short time in conditions of objective disorganisation, a defence based on lack of fault may become relevant. The condition, however, is always very careful documentation.

No harm done: one of the most underestimated lines of defence

In court practice, the potential of a defence based on the absence of damage is relatively rarely recognised immediately. Meanwhile, it can be one of the most interesting and effective strategies. Its point boils down to the question of whether the creditor would have obtained greater satisfaction if the management had reacted earlier in the manner prescribed by law.

In other words, it is not always enough to say that the creditor did not receive the money. It is also necessary to examine whether a timely bankruptcy filing or an appropriately early opening of restructuring could have realistically increased the degree of their satisfaction. If the answer is negative, the defence based on lack of damage can prove to be very strong.

However, this type of defence usually requires advanced work on financial data. It often also involves the need to reconstruct hypothetical events: what the company's assets were at the relevant time, what its liabilities were, what the order of satisfaction of creditors would have been, and whether the plaintiff would actually have received anything more. It is an ambitious defence, but that is precisely why it can be very effective in the hands of an experienced representative.

TK P 5/19: turning point for former board members

In recent years, the Constitutional Court's ruling in case P 5/19 has gained particular significance. For defence practice, it means a significant strengthening of the position of former board members in cases where proceedings against the company were initiated after they ceased to be board members.

The significance of this ruling lies primarily in the fact that, in certain factual situations, the former member of the management board can today more effectively challenge the very basis of the claim established by the judgment against the company. This is very important in historical cases where, years later, an attempt is made to seek payment from persons no longer associated with the company. In such cases, it cannot be automatically assumed that a final judgment against the company absolutely closes the way to a substantive defence of the former board member.

Of course, the significance of the Constitutional Tribunal's ruling P 5/19 is not limitless. It does not remove Article 299 of the Commercial Companies Code from the legal system or turn every case into a full re-examination of the entire underlying relationship. However, in specific procedural configurations, it provides former board members with much stronger defence tools than they had a few years ago. This is precisely why, in every case, it is necessary to precisely determine not only the composition of the board but also the moment the proceedings against the company were initiated.

Limitation of claims under Article 299 of the Commercial Companies Code

Statute limitations can be considered a technical defence, but in cases involving Article 299 of the Commercial Companies Code, it can have significant practical importance. Creditors often focus on the primary goal of recovering their dues, and the analysis of the chronology and running of the statute of limitations takes a back seat. From a defence perspective, this is a mistake that is not worth making.

In many cases, only a detailed reconstruction of the sequence of events allows for an assessment of when the creditor became aware of the ineffectiveness of enforcement, when they identified or could have identified the responsible parties

In practice, this allegation should not be treated as a routine addition to the defence. It must be analysed carefully and placed within a specific timeline. In commercial cases, it is precisely the chronological details that very often determine the outcome of a dispute.

What evidence truly wins cases under Article 299 of the Commercial Companies Code?

In matters under Article 299 of the Commercial Companies Code, it is not so much the number of documents that is advantageous, but rather their organisation and evidentiary function. Very often, courts receive extensive but chaotic collections of attachments, from which neither the company's financial situation, nor the management board's reasoning, nor the critical moments for assessing liability are clear. Meanwhile, a good defence requires the opposite: a clear narrative and documents attributed to specific arguments.

The most useful are usually: board resolutions, meeting minutes, financial statements, accounts receivable and payable statements, liquidity reports, correspondence

From a defence perspective, creating a clear timeline is also key. When did the debt arise? When did management become aware of liquidity problems? When did liabilities cease to be settled on a sustainable basis? When was bankruptcy, restructuring or other remedial action analysed? When did the situation definitely deteriorate? If these questions are not clearly answered by the evidence, the court often constructs its own reconstruction of events, and this can be very risky for the defendant.

The most common errors made by sued board members

The first mistake is purely intuitive and emotional defence. The defendant is convinced that because they acted honestly, spent time saving the company, and did not intend to harm anyone, the court should take this into account. The problem is that in proceedings under Article 299 of the Commercial Companies Code, such arguments have limited weight without solid evidence.

The second mistake is omitting the preconditions on the creditor's side. The defendants too quickly assume that the plaintiff is "definitely right" about the existence of the obligation and the ineffectiveness of enforcement. Meanwhile, it is precisely at this stage that it is often possible to win the case even before a detailed examination of the exonerating preconditions.

The third error is underestimating the value of documentation. In many companies, management decisions are effectively made but are not adequately recorded. Meeting minutes, analysis notes, correspondence, or financial reports are not archived. When, after two or three years, it becomes necessary to reconstruct the management's decision-making process, it turns out that the actual actions were not documented in a way that allows them to be proven.

The fourth mistake is not to take into account changes in the company's situation during the process. Defendants sometimes assume that since enforcement was once ineffective, it will remain so forever. However, an improvement in the company's financial situation may weaken or even eliminate the basis for liability under Article 299 KSH.

The fifth mistake is a simplistic understanding of the "right time". In practice, it is not enough to say either that the management acted in time, or that they waited too long. This needs to be demonstrated precisely, against real financial data and the actual situation of the company.

How to mitigate risk before litigation

The best defence against claims under Art. 299 of the Commercial Companies Code begins long before the lawsuit is served. In modern company management, merely controlling financial results is no longer sufficient. An early warning system for legal risks related to insolvency and the liability of management board members is also needed.

In practice, this means regular monitoring of liquidity, periodic reporting of overdue liabilities, analysis of the debt structure, ongoing review of public liabilities, minuting of key management decisions, prompt contact with a restructuring advisor in the event of a liquidity deterioration and consistent archiving of material that may become evidence in the future. These are not formalities 'just in case'. They are a viable layer of protection for board members.

In a well-organised company, there should indeed be "anti-299" procedures: defined alert thresholds, reporting rules, a procedure for convening crisis meetings, and a legal and financial consultation path. From a process perspective, the most important thing is that after the event, it is possible to demonstrate not only the board's concern but also its concrete, documented manifestations.

FAQ: the most frequent questions about Article 299 of the Companies Act

Does a claim under Article 299 of the Commercial Companies Code mean automatic liability of a management board member?

No. The creditor must still demonstrate the basic premises of liability, in particular the existence of a duly proven obligation and the ineffectiveness of enforcement against the company. Only in the next step does the need for the defendant to demonstrate the grounds for exoneration arise.

Does a board member have unlimited liability with their private assets?

In practice, liability under Article 299 of the Commercial Companies Code can lead to recourse against the personal assets of a board member, as once the statutory conditions are met, a creditor can pursue the claim directly against them. However, this does not mean that liability arises automatically in every case or to the full extent claimed by the plaintiff.

Is it enough to resign from a position to avoid responsibility?

Not always. Resignation does not automatically remove responsibility for events related to the period of holding office. What matters is when the basis for the obligation arose, when the state of insolvency occurred, and when proceedings against the company were initiated. In certain factual states, the significance of the CTK ruling P 5/19 may also be important.

Does restructuring protect against liability under Article 299 of the Code of Commercial Companies?

It can provide protection, but not all of it, and not at all times. For a defence, it is crucial to demonstrate that appropriate restructuring proceedings were initiated in due time and in the manner prescribed by law.

What does a defence based on a lack of harm entail?

Such a defence seeks to show that even if the board had reacted earlier, the creditor would not have obtained a higher level of satisfaction. It is not a straightforward argument, but in appropriate cases it can be one of the strongest lines of defence.

Can the defence of limitation be raised in a case concerning Article 299 of the Commercial Companies Code?

Yes. In many cases, the statute of limitations requires a very careful analysis of the running of time and dates. It is not only the timing of certain economic events that can be crucial, but also the creditor's knowledge of the damage and of the persons potentially liable.

Summary

A good defence against a claim under section 299 of the Companies Act does not rely on a single impressive allegation. It consists of a disciplined construction of the entire architecture of the process. First, it is necessary to check whether the creditor has actually demonstrated the grounds for liability on its side. Then - if necessary - one or more lines of exoneration must be consistently built up: timely bankruptcy response, properly carried out restructuring, no fault or no damage.

In practice, cases under Article 299 of the Commercial Companies Code best illustrate the difference between a formal understanding of a regulation and real procedural experience. Here, it's not just company law that counts, but also an understanding of the real functioning of business, bankruptcy and restructuring law, civil procedure, and the ability to work with evidence. Therefore, effective defence of a management board member against liability for the company's debts requires not only legal knowledge, but above all, a good strategy.