Creditors will be able to enforce their claims directly against controlling shareholders

One of the main reasons businessmen conduct their business through companies is to transfer the risk from themselves to the company. In other words, creditor claims against a company can only be satisfied from company assets, whereas the assets of its owners – the shareholders are protected. The statutory protection of shareholders has the prosaic name corporate veil.

The recent amendment to the Slovak Commercial Code introduces a provision, which, for the first time in Slovak law, partially pierces the corporate veil.

The new regulation applies only to controlling shareholders. A “controlling shareholder” is a legal entity or a natural person that holds a majority share in a company’s voting rights. Any company so controlled is considered to be a “controlled company”.

According to the amendment, any controlling shareholder that significantly contributes to its controlled company’s insolvency is obliged to compensate the company creditors for the damage caused as a result of the insolvency of the controlled company. The law assumes that the company is insolvent not only if it has more than one creditor and the value of its obligations exceeds the value of its assets, but also if, due to lack of assets, the insolvency cannot be declared, or continued, or the enforcement proceeding executed.

A controlling shareholder can relieve itself of this obligation if it can prove that it acted in an informed way and in good faith for the benefit of the controlled company. Thus, it appears that a form of the “business judgement rule”, well established in common law jurisdictions, is being introduced in Slovakia. Hence, the controlling shareholders are protected from the consequences of incorrect business decisions which were not aimed at damaging the company or its creditors.

The law presumes that the damage is in the extent of the unsatisfied claim. However, this does not prevent creditors from claiming damages in their actual amount together with lost profit.

The new regulation enables creditors to enforce their claims even if the insolvency was caused by a shareholder of their business partner.

The discussed provision will come into force on 1 January 2018.

Article courtesy of   bnt attorneys-at-law, s.r.o.