Holding subsidiary liability of the founder, director and trustees

The content of the article

• What is subsidiary liability
• The founder
• Debtor’s manager
• Trustees or parents of a minor
• Legal regulation of subsidiary obligations
• When subsidiary liability arises
• Terms of liability
• Limitations
• Types of subsidiary liabilities
• Contractual liability
• Non-contractual
• Holding to subsidiary liability
• The procedure for attracting
• Collection procedure
• Subsidiary liability in case of bankruptcy of a legal entity
• How to attract a director
• Statement of subsidiary liability
• Director implications
• How to avoid subsidiary liability of the head of the debtor
• What is the difference between joint and several liability

If you are going to figure out what subsidiary liability is, we will consider an unpleasant situation where the debtor cannot pay his creditor for his obligations. There may be several further options for the development of the action, but in any case, if there are other obliged persons, the burden of the outstanding debt falls on them. This form of sub-responsibility is legally enshrined in the Civil Code of the Russian Federation to protect the interests of the victim, therefore it is used very often in legal practice.

What is subsidiary liability

The origin of the word “subsidiary” well explains its meaning, because the Latin analogue “subsidiarus” means “reserve or auxiliary.” Indeed, the offender himself bears the main responsibility, and the subsidiary form only supplements it, and increases the protection of the interests of the victim, having a compensatory orientation. It is important that an individual who is brought to such responsibility does not commit an offense. For example, according to article 363 of the Civil Code, a loan guarantor must also be responsible for non-received debt.

The founder

Substantiality defined in the legislation in the event of bankruptcy of an enterprise or organization extends to a wide range of persons entitled to give instructions. In addition to the founders, this includes members of governing bodies, a professional association or a full partnership, therefore, if the company itself cannot pay its debts in the event of bankruptcy, the responsibility can be transferred to these people.

According to the current wording of the Civil Code, the owner of the company is not liable for its obligations. It would seem that the ideal situation for business owners in the event of recognition of insolvency, but such a successful outcome is possible only if it is proved that the emergence of a critical situation in the company was not the fault of the founder, otherwise he would have to participate in paying off the debt.

Debtor’s manager

Bringing the head of the debtor (general director) to subsidiary liability is similar to the situation with the founders of the company. Here, evidence is also required that the person is involved in violations that are defined in the law. Such violations include, for example, inadequate storage by the Director General of accounting records that allowed for loss or damage..

Trustees or parents of a minor

The law provides for subsidiary liability of parents and equivalent persons (guardians) for harm caused by minor children. At the same time, for a child under 14 years of age, parents are fully responsible for compensation for damage, and for ages 14 to 18 only if the teenager has no sources of income (or property) for financial compensation.

Legal regulation of subsidiary obligations

The concept of “subsidiary liability” was introduced into the legal field relatively recently – in 1995. However, this does not mean that he was not there before. Other terms were used for the name, for example, “additional liability” or “simple guarantee”. The content of Article 399 of the Civil Code of the Russian Federation considers the basic provisions of liability on a subsidiary basis (about a dozen sections and paragraphs of the Civil Code of the Russian Federation consider the rules of application). This provision is also fixed in a number of other laws, for example, “On Insolvency (Bankruptcy)”.

When subsidiary liability arises

Performing additional (reserve) functions, a subsidiary liability does not arise immediately with the appearance of debt, but after certain events. The key point here is the failure of the principal debtor to fulfill his obligations when, for some reason, he cannot pay:

• a 15-year-old teenager broke a shop window and does not have his own money;
• a man took a loan for a car, but was left without work and this prevents him from paying;
• the legal entity is in bankruptcy and the property assets of the institution do not cover the debt.

In this case, claims will be brought against the subsidiary defendant – in the situations considered, these will be the parents, guarantor and founders of the legal entity. When deciding on the payment of a debt, such a defendant can counter use the entire argumentation base and objections of the main debtor, if this helps him optimize the payment procedure – the legislation allows this.

Terms of liability

The declaration of sub-responsibility in the event of bankruptcy of an enterprise does not occur automatically, but only if certain conditions are met. For the general director, founders or the chairman of the liquidation commission, such conditions will be:

• unlawful violation of their duties and rights of third parties;
• proven guilty party;
• the presence of losses or harm;
• a clear link between the unlawful activity of the offender and the negative consequences.

Limitations

Article 400 of the Civil Code of the Russian Federation addresses the issue of limitation of liability. It will be interesting for subsidiary debtors to learn that the legislation sets limits on certain types of obligations that simplify the payment scheme and increase the reliability of property turnover. Such limits may relate to the reasons why losses cannot be compensated at all, compensation of only real damage or part thereof. The law establishes preferential conditions for the reimbursement of losses for energy supply, communications and transportation enterprises..

Types of subsidiary liabilities

Two types of sub-responsibility are legally distinguished, which can be contractual or non-contractual. In the first case, a prerequisite will be the signing of a special agreement that sets out the conditions for the onset of this obligation. No contracts are required for non-contractual liability – the legislation has already defined these criteria.

Contractual liability

The most common example of contractual liability is the satisfaction of creditors in a situation where the original debtor refuses this. At the same time, the very fact of refusal (or lack of response within the prescribed time) is important in order for the claim for payment to extend to the guarantor. At this stage, it does not matter whether the main debtor can independently pay (does he have the necessary property, etc.). The guarantor is involved in the legal process, during which it will be determined who will bear the burden of fulfilling obligations.

Non-contractual

Considering the non-contractual form, you immediately notice that it affects completely different situations – bankruptcy of companies and parental responsibility. The unifying principle, bringing together these different cases, will be the absence of the need for legal consolidation of the duties of an additional defendant (using an agreement, etc.), which are applied upon the fact. For example, no contracts are required for parents to become defendants in case of harm by a teenager from 14 to 18 years old.

Holding to subsidiary liability

In 2013, amendments to the Law “On Insolvency (Bankruptcy)” significantly increased the measures of influence on controlling persons, who, according to the new rules, must themselves prove their innocence. However, even in this perspective, the search for a direct causal relationship between the actions of the CEO and the bankruptcy of the organization will not always be simple. Putting sub-responsibility on the parents of minors or guarantors in this regard is not such a difficult process.

The procedure for attracting

Involvement in sub-responsibility, even when it comes to documented contractual relationships, is a multifaceted process that begins with the preparation of a statement to the court. Difficulties in attracting the founder or director of a company automatically imply legal advice (or a more complete participation of specialists), for more successful promotion of the case.

Collection procedure

Regardless of whether we are talking about the parents of a minor offender, a guarantor for an unscrupulous payer of credit or controlling persons of the organization, the collection of additional liability implies judicial review. In this case, the specific degree of guilt and the amount of financial compensation will be determined. In some cases, the decision may be in favor of the defendant, exempting him from payments.

Subsidiary liability in case of bankruptcy of a legal entity

Although subsidiary (additional) liability is clearly defined by applicable law, there are many options for directors and founders to avoid it, or at least to minimize payments. That’s why, if you are thinking about how to bring the director to subsidiary liability, get ready that this may require significant efforts..

How to attract a director

Considering the procedure for attracting the head or founder of the debtor to sufficiency, it is important to know that this process, in the vast majority of cases, follows only the bankruptcy procedure. Bankruptcy can be initiated by a bankruptcy trustee or tax inspectorate. However, you need to be clearly aware that this will entail a large investment of time, therefore, if the main goal is to receive an unpaid salary, then it is easier to do this through contacting the labor inspectorate.

Statement of subsidiary liability

As a rule, a statement on bringing the debtor’s controlling persons to sufficiency is submitted by the bankruptcy trustee, guided by the decision of the meeting of creditors. The text of the application should indicate the articles of the law on the basis of which this document is submitted, and the most voluminous narrative should contain complete information about violations by specific controlling persons.

All allegations must be supported by a legal expert opinion and financial analysis data proving that the decrease in the bankruptcy estate was due to the fault of the director (or founder). Based on the Law “On Insolvency (Bankruptcy)”, it is possible to attract company control persons to additional liability. At the same time, it is very important that by this moment a bankruptcy estate is formed and distributed, so do not rush by submitting such a statement.

Director implications

A review of the rulings of the arbitration courts of Russia will quickly show that, according to existing practice, company directors are not very often prosecuted for sufficiency, even though such persons are a priori considered guilty of bankruptcy of the company! However, the likelihood of sanctions still exists, therefore, controlling persons should not delay the appeal on the insolvency of the company. Otherwise, this increases the possibility of a court decision recognizing subordination, and setting the amount for payment.

How to avoid subsidiary liability of the head of the debtor

There are a number of actions that will help the CEO prevent the possibility of being sued. Anticipating bankruptcy, transactions of dubious nature with the transfer of assets of the company should be avoided or their necessity should be justified as efficiently as possible. It is also important to challenge the tax collection in a timely manner, because it can also lead to sanctions. In many cases, a preliminary appeal to an arbitration lawyer will be necessary to assess the state of the company before bankruptcy.

What is the difference between joint and several liability

The Russian legislation clearly distinguishes between subsidiary and joint liability, which determines the different actions of the creditor in each of these cases. In the case of joint liability, all participants have equal obligations to repay the debt, and the creditor has the right to receive payments at the same time from all, or from someone alone. In case of sub-responsibility, the mechanism will be different, in which a prerequisite for implementation will be the refusal of the main debtor to pay the debt.