Personal Liability of a Director to Creditors in the Case of Thin Capitalisation of a Company

Abstract

Liability of a director of an insolvent company for damage caused to creditors is recognised in many countries if the director remains inactive when insolvency occurs and fails to take measures to suspend the activities of the company in time, primarily by failing to file a bankruptcy petition. However, permanent insolvency is, as a rule, preceded by a ‘twilight zone’ in which the company is not yet insolvent but experiences thin capitalisation. To guarantee better protection of the interests of creditors, the director should take steps to protect the interests of creditors already in the twilight zone instead of waiting for the company to become permanently insolvent. The article examines whether and under what circumstances a director of a company could be held liable for damage caused to creditors if that director violates its statutory duties and remains inactive when the company experiences thin capitalisation.