A EUR 1,000,000 indirect action in court against a director in bankruptcy proceedings – how did I manage to defend him?

The “settling of scores” with the managers and shareholders of bankrupt companies in court cases has ended in my client's favour!

Another case won! One of those that called for unique legal and procedural solutions every day.

I defended yet another former company director in bankruptcy proceedings, when a claim was brought against him for compensation of more than EUR 1,000,000 in damage.

Indirect actions are not an everyday occurrence in case law, so legal “imagination” has to be used to the maximum here. You won't find answers anywhere as to what to do in the proceedings, how and when. Or you will find only certain guidelines. That is why everything here is so unique and depends to a large extent on the representative chosen.

In this case, a whole “package” of various claims was brought: to declare invalid the decisions of the general meeting of shareholders of the bankrupt company approving the results of the valuation of the company's assets, increasing the authorised capital, issuing additional shares and allocating the newly issued shares to the shareholders; to declare invalid the agreements for the sale and purchase of shares of the bankrupt company concluded by the defendant bankrupt company with the defendants, and to apply bilateral restitution, restoring the parties to the position they were in before the disputed transactions were concluded; and to award compensation for damage in the amount I mentioned. The claim was filed by another former manager and shareholder of the bankrupt company, who later also became a creditor of the bankrupt company.

This case involved a dispute over the indirect action and its conditions, and the courts had to acknowledge that the situation was out of the ordinary. As is well known, the case law of the court of cassation has consistently held that an indirect action may be brought only where all the necessary conditions laid down by law are met.

The indirect action sought to have the agreements for the sale and purchase of shares of the bankrupt company declared invalid and to apply bilateral restitution, restoring the parties to the position they were in before the disputed agreements were concluded. Thus, the claim sought a legal result whereby the shares of the bankrupt company would be returned to the defendants who had sold them, and the money paid for them would be returned to the other bankrupt company that had acquired the shares. What effect the invalidation of the agreements and the application of restitution would have on the legal entity – the bankrupt company itself – and/or its creditors, the claimant did not specify in his procedural documents and was unable to explain convincingly at the hearings, even though, having brought a claim of this kind, he was obliged to prove that the bankrupt company had an enforceable property right against all the defendants (the sellers and the buyer of the shares) which it was not exercising or refused to exercise. The courts did not establish any right held by the bankrupt company against the defendants that it was not exercising.

Therefore, in the courts' assessment, the exceptional situation in the case under examination also made it possible to conclude that the claim to declare invalid the decisions of the general meeting of shareholders of the bankrupt company, on the basis of which new shares were issued and allocated to the defendants and later transferred to the other bankrupt company under the disputed agreements, was in fact aimed at creating a right of the bankrupt company to demand that the share sale and purchase agreements be declared invalid, rather than at exercising any claim right of the debtor bankrupt company itself, especially since no such right of the company had been established.

In other words, the court upheld my position and found that the claimant had proved neither that the bankrupt company had a certain property right that it was not exercising, nor that such a right was indisputable. On the contrary, the claim brought sought to create such a right. And that is far from the same thing.

The court also followed our position and found that the claimant had not proved that the conclusion of the disputed transactions specifically, and before that the adoption of the relevant decisions at the general meeting of shareholders, had infringed his (the creditor's) rights and interests or those of the company itself whose shares it had been decided to issue and agreed to sell.

So the defensive position we had taken in the case paid off: having found that the full set of necessary conditions for granting an indirect action was not met, the court reasonably dismissed the claim to declare the share sale and purchase agreements invalid, which means that I can discuss the other claims in more detail in another post of mine, since the court undoubtedly went on to analyse them consistently as well. And it dismissed the entire claim.

Almost 20 cases were brought in the course of these bankruptcy proceedings, but today my client can now turn a new page in his life, and all that remains for me is to be glad that I defended him in all the court proceedings, stood by him for almost 10 years, and that exactly EUR 0 was awarded against him in all the cases.

How I adore bankruptcy cases and questions of directors' liability. Why? Because in them you can “create”, using legal knowledge and the experience gained in bankruptcy cases from a different “angle” every time. For me, that means professional nirvana – nothing less.

Very soon you can look forward to a new post of mine about how, in a claim seeking to recover almost EUR 30,000 from a former CEO, he ultimately had to pay a total of only slightly more than EUR 1,000. There I will reveal how I managed to achieve this in the case.

LAWYER