Owners, managers and other responsible persons may be held personally liable for debts of a bankrupt commercial entity. Relevant provisions were incorporated in Belarusian legislation in 2003; however, they were not applicable until 2015. Since then, instead, Belarusian Courts have certain times reached a decision to pierce the limited liability companies’ corporate veil to their shareholders. Moreover, both Belarusian and foreign shareholders have already been held liable for companies’ debts.
The text below is an abridged excerpt from the Paragraph-by-Paragraph Comments to the Law of the Republic of Belarus “On Economic Companies” (ConsultantPlus-Belarus Legal Reference Database, 2016). Coauthors: Andrei Vashkevich, Irina Anop, Oksana Puchkovskaya, Olga Obsekova, Yevgeni Bozhko, Dmitry Semashko.
1.Under the Belarusian legislation, commercial legal entities may be founded in the form of joint stock companies, limited liability companies and additional liability companies (hereinafter referred to as legal entity).
A legal entity key feature is that shareholders liability is limited to their stake in the company. Therefore they cannot be held personally liable for the company`s debts.
2. In an additional liability companies (ALC), as follows from the term, members bear, jointly and severally, secondary liability for its obligations to the extent of their assets within the limits stipulated in the company’s articles of association (Article 112 of Law № 2020- XII).
In other words, instead of building a large registered fund, members assume an additional liability for the company’s debts, when the company’s assets are insufficient.
However, according to Part 2 of Article of Law № 2020-XII there is a particular condition for shareholders of a limited liability company to be held personally liable for the company`s debts. Those shareholders who have not made their contributions to the statutory fund in full shall bear joint and secondary liability for the company’s obligations within the outstanding amount of the contribution.
3. In certain exceptional circumstances there is a possibility of holding shareholders and CEOs liable for the company`s debts. This is called piercing the corporate veil.
In such cases, stakeholders of an economic company, as well as other persons entitled to give instructions binding for the company, or otherwise capable of directing its activities (including a sole executive), may be held liable for the company’s debts.
It should be mentioned that there is no information on open joint-stock companies shareholder`s liability available in open sources. As a rule, liability is imposed mostly on shareholders of LLCs and additional liability companies, i.e., companies, where shareholders have a significant influence, and sometimes actively participate in corporate management.
4. Based on the above mentioned information and overall on the litigation practice, there are following prerequisites for piercing the corporate veil:
-Bankruptcy must have occurred;
-The shareholder or CEO has the relevant authority to give instructions binding for the economic company, or capacity to otherwise direct its activities;
-The shareholder or CEO has committed the relevant actions (or act of omission) attesting to the authority to give binding instructions or to application of their ability to direct its activities;
-There must be a causal link between the bankruptcy and the cause (actions of particular shareholder or CEO led to bankruptcy)
As follows from the rights and duties stipulated in Law № 2020-XII, participation in corporate management is a shareholder’s right, not a duty. However, it should be taken into account that, in case of bankruptcy, a shareholder’s omission may also serve as a ground for holding that person liable for the company`s debts.
4. There are also a few conditions, when the above-mentioned causalities do not have to be proven.
In particular, the law defines when the company must file a petition of bankruptcy. This obligation rests upon persons authorized by founding documents, contracts or laws, to administer the company. Such are members/shareholders, the manager, the liquidation board chairperson / the liquidator, other persons with the above-mentioned authority. Unless the requirement to file a petition of bankruptcy is fulfilled, the responsible persons shall be, jointly and severally, held liable for the company’s obligations.
5. Secondary liability is imposed on the above-mentioned persons, inter alia, upon retirement of the company’s shareholders/founders, termination of employment in the company, cessation of the authority to give instructions binding for the company, or otherwise direct its activities.
6. Creditors, their successors, public authorities, public prosecutors, controlling agencies may file secondary liability claims within ten years from the time of commencement of proceedings on an economic insurance/bankruptcy case.
Thus, the Belarusian legislator followed the path of a number of countries, first of all, the USA and the United Kingdom that have introduced the “piercing the corporate veil” concept.
