Legislative Framework and Jurisprudence
According to § 194 Paragraph 6 of the Commercial Code, the liability of members of statutory bodies for the company's obligations is strictly defined. The Supreme Court of the Czech Republic, in its decision ref. no. 27 Cdo 1264/2023 dated November 15, 2023, emphasized the distinction between damage caused to the company and damage caused to a third party, which significantly affects the scope of liability.
Principles of Responsibility
A member of the board is responsible for damages caused to the company only if they breached their duties while performing their role, not for damages caused to third parties, which the company is liable for. This distinction is crucial for determining the extent of statutory liability.
Case and Legal Proceedings
In 2021, the City Court in Prague dealt with a case where members of the board of a securities dealer failed to prevent significant losses for investors. The first-instance court found that the board members did not fulfill their duty to protect clients' assets, leading to financial losses and the subsequent bankruptcy of the company.
Judgment and Its Implications
The appellate court subsequently assessed whether the damage to the company was directly caused by the breach of duties by the board members. However, the decision was challenged and the case was sent back for further investigation. The Supreme Court eventually annulled the appellate court's decision and returned it for re-examination, emphasizing the need for clear evidence of damage caused by the negligence of the board members.
Conclusions and Recommendations for Practice
This case illustrates the importance for members of statutory bodies to maintain a high standard of due diligence and how significant the consequences of their decisions can be for the financial health and reputation of the company. The Supreme Court's decision provides a significant jurisprudential view that should be considered when formulating internal controls and making strategic financial decisions.
