Liability of an inactive managing director for the company’s obligations: Passivity does not absolve from responsibility

In the practice of the Czech business environment, it is not uncommon for persons who do not actually perform their function to be appointed as members of the statutory bodies of commercial corporations. These formal statutory officers, who are appointed “as a makeweight” – typically family members of the shareholders and/or other members of the statutory body – usually have no real influence on the business management of the company and often have no idea what the real state of the company’s operations is.

However, it should be remembered that the Companies Act imposes an obligation on members of statutory bodies to act with due care – regardless of whether they are only “paper” or real statutory bodies. The mere fact that the company is in fact managed by someone else and that a formal member of the statutory body has no decision-making powers and often not even the necessary information about the company’s operations is not a sufficient reason for exemption from statutory obligations, or for the non-application of statutory liability and exoneration from the obligation to pay damages.

This issue was recently examined by the Supreme Court (SC), which in its judgment No. 27 Cdo 2293/2024 of 25 March 2025 dealt with the question of liability of a managing director, who did not actually perform her function, for the debt of a company that was actually managed by another managing director.

In the case at hand, the plaintiff demanded that the defendant, as the former managing director of the company, guarantee the company’s debt incurred on the basis of the loan agreement in the amount of CZK 5,265,465.08, with reference to Section 68 of Act No. 90/2012 Coll., the Trade Companies and Cooperatives Act (TCA).[1]

The defendant acted as the company’s managing director from 17 May 2016 to 18 June 2019. During this period, she did not participate in the running of the company and all the duties of the managing director were in fact performed by the other managing director. Since 2017, the company had been in bankruptcy, which was confirmed by the court on 4 September 2020, and subsequently, on 1 December 2020, the company’s assets were declared bankrupt.

The lower courts unanimously concluded that the defendant caused damage to the company by failing to recover, from her position, funds amounting to approximately CZK 9,000,000 borrowed from the company by the former husband of the managing director. The managing director is liable for this damage in accordance with Section 159(3) of Act No. 89/2012 Coll., the Civil Code (CC). At the same time, by her passivity, she fulfilled the conditions for the application of liability under Section 68 of the TCA, as she did not take action against the impending bankruptcy. However, the courts of first and second instance ultimately did not uphold the action. The courts took into account the fact that:

1. the defendant is the mother of three minor children who require constant care due to their health condition,
2. the plaintiff did not enforce his claim earlier, although he could have, and moreover

• the plaintiff has already received an amount of almost twice the principal on the defendant’s claim.

Citing a potential conflict with good morals and cruelty or recklessness offensive to ordinary human sensibilities, the action was dismissed.

However, the Supreme Court rejected the arguments put forward by the lower courts. According to the SC, the defendant took on the position of managing director already knowing that she would not fulfil her statutory duties and that she would only be a “money mule”. By doing so, she violated her duty to perform her duties as managing director properly, at least with indirect intent. This means that the defendant knew that her actions could violate legal norms and, should this happen, she accepted this.

The Supreme Court concluded that if there is an intentional breach of legal obligations and damage is caused as a result, the award of damages cannot be considered cruel or inconsiderate. Protection of the offender for the purpose of proportionality of the sanction is only appropriate under very exceptional circumstances. However, neither worsening financial circumstances nor a difficult family situation are sufficient on their own.

The decision of the Supreme Court clearly defines the fundamental principle of the responsibility of members of statutory bodies and makes it clear that accepting the position of a member of a statutory body entails legal obligations, which cannot be waived by stating that the position is performed only “for the sake of appearance”.

[1] The referenced provision established the statutory liability of the members of the statutory bodies for the debts of a bankrupt corporation in the event of a breach of their duties related to the bankruptcy. For the sake of completeness, it should be noted that the above provision was repealed with effect from 1 January 2021, and replaced by a new provision. The liability of members of statutory bodies and the obligation to deliver performance under contracts of office upon the insolvency administrator’s request are now contained in Section 66 of the Trade Corporations Act.