Statute of limitations on a claim for damages against a company's managing director

Authors of the article: Mgr. Pavel Čech, ARROWS advokátní kancelář (office@arws.cz, +420 245 007 740)

One of the key legal issues that entrepreneurs and companies may encounter is the statute of limitations on a company's claim for damages against an executive. In its recent decision (Case No. 27 Cdo 2753/2023 of 21 November 2024), the Supreme Court clarified when the limitation period begins to run if the company's executive has caused damage by his or her conduct. The decision has a significant impact on practice, as it affects the possibility of successful recovery of damages.

A case decided by the Supreme Court

The dispute concerned a company's managing director who withdrew funds from the company's account for hunting permits and the sale of hunted game, but these amounts were not booked in the company's accounts. The managing director used part of the money for the operation of the hunting ground, but the remaining funds were not documented as having been used for the benefit of the company. The courts addressed the question of when the company suffered damage and when the limitation period for claiming compensation began to run.

The Supreme Court's fundamental conclusions

In its decision, the Supreme Court focused on the moment when the damage occurred and thus on the start of the limitation period. In doing so, it adopted the following key conclusions:

1. The mere receipt of money by the managing director from the company's account does not constitute damage
• The mere receipt of funds by the managing director does not mean that the company has suffered damage. The decisive factor is when the executive transferred the money out of the company's disposal (for example, by keeping it or using it for personal purposes).
2. The limitation period only runs from the time when the company could have objectively asserted the claim
• If the company had the opportunity to discover the damage earlier (for example, through another executive or a proper audit of the accounts), the limitation period may start to run at that point.
• If the company could not have detected the damage earlier, the limitation period will only start to run after the damage has actually occurred, for example, when the executive who should have managed the funds ceases to hold office.
3. Burden of proof on the issue of limitation
• If the managing director defends the claim by pleading limitation, he must prove that the limitation period has already expired. If he fails to do so, the courts will proceed on the basis of the later commencement of the limitation period.

Practical implications of the decision

This decision has important implications for companies and their statutory bodies:

• For companies: If there is a suspicion that an executive has caused damage, it is essential to carry out regular audits and monitor accounting flows in order to react in time and prevent the claim from being time-barred.
• For the executive: If the executive defends a claim for damages by reference to the statute of limitations, he must be prepared to provide evidence that the statute of limitations has actually expired.

Conclusion

The Supreme Court's decision provides important guidance for assessing the statute of limitations on claims for damages against corporate executives. It shows that it is not only the time of receipt of the money that is relevant, but the actual time when the funds were removed from the company. Businesses should therefore take care to keep careful records of financial flows and executives should be aware of their liability and the burden of proof in any dispute.

Entrepreneurs, do you keep track of your company's cash flows? And what about executives - are you sure you are not in for an unpleasant surprise? At ARROWS, we can help you protect your rights. Don't hesitate to contact us.