How to Respond to a Damages Claim for Breach of Due Managerial Care

11.5.2026 | ARROWS law firm

Have you received a written letter from your company, a creditor, or a shareholder demanding compensation for damages and alleging a breach of the duty of due managerial care? Don’t panic, but take it seriously. Such a demand typically precedes court proceedings and triggers a specific deadline for resolving the matter. If you ignore it or respond chaotically, you risk not only financial loss but also weakening your legal position in any subsequent court case. This article will explain what lies behind such demands, what your rights and risks are, and most importantly: how to proceed safely from here.

In the image, we see a lawyer consulting on a demand letter for damages.

Article contents

Key takeaways
What the duty of due managerial care is and when it is breached
What a demand for compensation looks like – What to expect
Burden of proof and defence – Who bears the obligation to prove what
How to respond safely to a demand – A practical step-by-step guide
How to protect yourself going forward – Prevention
Final summary

Key takeaways

The duty of due managerial care is a legal standard – members of statutory bodies (executive directors, members of the board of directors, members of the supervisory board or the administrative board) are required to manage the company with loyalty, the necessary knowledge and due care, and they are liable for breaches of this duty under Czech law.
A demand for compensation is not a court case yet – it is the last opportunity to reach an out-of-court settlement, but also the starting point of a process that may end with a lawsuit and a court judgment in the Czech Republic.
The burden of proof is complex – while the other party must prove that damage occurred and its amount, you must prove that you acted with due managerial care. What seems clear often is not.
Time matters – inaction and unwillingness to communicate may work against you, and there is also the risk of limitation periods affecting your defence rights or, conversely, the other party asserting its claim in time.

What the duty of due managerial care is and when it is breached

To understand the demand you have received, we first need to understand what it means to breach the duty of due managerial care. It is a legal standard governed by the Civil Code (Act No. 89/2012 Coll., as amended) and the Business Corporations Act (Act No. 90/2012 Coll., as amended).

In a nutshell: a member of a statutory body (typically an executive director of a limited liability company or a member of the board of directors) undertakes to manage the company with the necessary loyalty, knowledge and due care. The standard of due managerial care is set out in Section 159 of the Civil Code and further elaborated in Sections 51 and 52 of the Business Corporations Act.

It is not just wording; it is primarily about practice. A due manager must protect the company’s assets, prevent their depreciation, and at the same time strive for their development and growth. Care is therefore not only defensive (preventing loss) but also active (reasonably increasing value).

This means you cannot simply take money from the company account and do whatever you want with it. You cannot ignore obvious risks that are foreseeable. You cannot hire an acquaintance for a key role just because they are your friend if they lack the necessary competence and there are more qualified candidates.

The duty of due managerial care applies to all members of an elected body of a legal entity – without exception. If you are an executive director, a member of the board of directors, the supervisory board, or the administrative board, this duty applies to you. Attorneys from ARROWS, a Prague-based law firm, often deal with situations where owners or managers in these roles downplay their responsibility because they believe they are “acting like everyone else”. The opposite is true. The standard is objective and is assessed from the perspective of a reasonably diligent person in a comparable position under similar circumstances.

Specific examples of breaches in practice

To make this clearer, let’s look at specific situations that lead to allegations:

Unauthorised withdrawals from the company account – An executive director starts taking money from the account without proper documentation, without a clear reason, and without approval from shareholders or another body. Even if they later claim it was a “company expense”, they must prove it was in the company’s interest. If they cannot, they may be liable for damages.
Delegating tasks to unqualified persons without oversight – An executive director entrusts the management of a key business unit to a person without sufficient experience and then monitors them irregularly or inadequately. If damage arises as a result and the executive director did not even have an overview of what was happening in the company, this constitutes a breach of the duty of care.
Ignoring obvious risks they were warned about – You were aware of liquidity issues, uncollectible receivables, or legal risks (for example, a dispute with a key client) and you did not respond at all. When damage occurs, an executive director cannot claim they did not know if they were aware of these risks.
Accepting office without the necessary knowledge – You become an executive director without any experience in the sector and without any effort to acquire the necessary knowledge. If you should have realised already when accepting the role that you were not sufficiently qualified, yet you accepted it anyway, this may constitute a breach of the duty of care.
An inappropriate business decision without professional advice – You enter into a major contract without legal or tax advice even though it is a transaction outside your usual scope and beyond your professional competence. Subsequent damage due to poorly addressed legal terms may also result in liability for breach of the duty of care.

What a demand for compensation looks like – What to expect

When you receive a demand, it is most often an email or a letter from the lawyer of the injured party (a company, creditor, shareholder) or from a law firm.

It may look like ordinary correspondence, but it is a legally significant document. The demand should include:

Clear identification of the parties – who is making the demand (name, registered office, company ID No.)
A precise description of the breach – what exactly you breached (which duty, and when)
A description and quantification of the damage – what damage occurred, how it was calculated, and in what amount
A request for performance – by when you must pay (usually 7–30 days)
A warning of consequences – that if you do not pay, a lawsuit will be filed

It typically also includes references to the legal grounds (e.g., Section 159 of the Civil Code, Sections 51–52 of the Business Corporations Act, Section 2913 of the Civil Code).

When it qualifies as a pre-action demand

The demand carries legal weight mainly because it often serves as a pre-action demand under Section 142a of the Czech Code of Civil Procedure. If you do not respond to it or fail to act, it may become the basis for court proceedings. If the other party wins the court case, you will also have to reimburse its legal representation costs, which become part of the costs of the proceedings.

One of the most common mistakes made by owners or managers is ignoring the demand. They feel it is not binding, that it is just a threat, and that without a court decision they do not have to do anything. The opposite is true. Silence and inaction may work against you in court proceedings and make your defence more difficult.

Burden of proof and defence – Who bears the obligation to prove

This is where we get to the core of the issue. Many cases are decided precisely on the question of the burden of proof. Generally, many people might think that the other party must prove that you caused the damage. That is not entirely accurate.

How it works in the event of a breach of the duty of due managerial care

When a court assesses whether you acted with due managerial care, the burden of proof lies with you – the managing director or member of a corporate body. This means that if the other party claims you breached your duty of care, you must prove that you acted properly and with due managerial care (Section 52(2) of the Business Corporations Act). The other party only has to prove that:

Damage occurred (measurable, substantiated)
Its amount
There is a causal link between your conduct and the damage

But you must prove that you acted with due managerial care. That is important. So if the other party claims that you withdrew money from the account without authorisation, you must demonstrate that the money was used for the benefit of the company and that you proceeded in accordance with legal regulations and the company’s internal rules. If you fail to do so, the court may order you to pay compensation.

The attorneys from ARROWS, a Prague-based law firm, involved in the defence in such matters know they must gather:

Documents – invoices, contracts, internal emails, meeting minutes, accounting records, decisions of the company’s bodies
Witness statements – HR, a fellow executive, a business partner, if they can confirm the circumstances of your actions
Expert opinions – if needed to assess specialised issues (e.g., economic, technical)
Precisely formulated factual assertions – linked to specific circumstances and legal argumentation

Practical defence: What you can raise

Your defence can take several directions. You do not have to just wait and hope it will turn out fine. You can challenge individual elements of the claim:

1. Challenging the correctness of the damage calculation – If the other party claims it lost one million CZK, but its calculation is incorrect or includes items that should not be compensated, you can challenge it. Damage must be calculated objectively, not arbitrarily.
2. Challenging causation – Just because something happened while you were leading the company does not mean you caused it. There must be a direct and provable link between your conduct and the damage incurred. If it can be shown that the damage arose for another reason (e.g., an independent external event), the claim can be called into question.
3. Proving that you acted in good faith and on an informed basis – Czech law recognises the so-called business judgment rule (Section 51 of the Business Corporations Act), which can protect you if you acted on an informed basis, in a defensible interest of the company, and with the necessary loyalty. It is not absolute protection, but it mitigates liability if a business decision later proves unsuccessful, even though it was rational at the time it was made.
4. Contributory fault of the injured party – If the injured party (for example, a shareholder or creditor) also contributed to the damage – e.g., through insufficient oversight or failure to monitor – part of the responsibility may be shifted to them and yours reduced ().
5. Limitation of the claim – If the limitation period has expired, the claim can no longer be successfully enforced. It is crucial to know the limitation rules, which are described later in the article.

Most common questions on defending against a demand letter

1. Do I have to pay immediately, or can I take time to think?
The demand letter usually provides a deadline of 7 to 30 days. That is time to consult a lawyer. Do not pay in the heat of the moment. If you are not sure whether you have objections, it is better to have the matter explained by a professional. The attorneys from ARROWS, a Prague-based law firm, can carry out a quick analysis and advise you whether payment is justified or whether you have grounds for a defence.

2. What if I believe the demand letter is inaccurate or contains errors?
Map out the errors (e.g., incorrect calculation, missing evidence, factual inaccuracies). Point them out in your response to the demand letter. From a procedural perspective, it is also important so that courts cannot later interpret the situation as you having failed to defend yourself. If you reject the demand without further reasoning, it may be interpreted as insufficient activity.

3. Should I contact a lawyer right now or only once it goes to court?
Immediately. Legal advice before the court phase is significantly cheaper and more effective. The attorneys from ARROWS, a Prague-based law firm, have experience handling these situations already in the pre-litigation phase, when there is still room for negotiation and settlement. Waiting until court is an unnecessary risk.

How to respond to a demand letter safely – A practical step-by-step guide

As soon as you receive a demand for compensation for damage, you have a specific window to act. Here is the approach we would recommend:

Step 1: Immediate review and preparation

First, read the demand letter carefully and make sure you have actually received it. Verify that it is addressed to you or your company, that it is signed, and that it contains a clearly defined claim. If you need proof of service, forward it to your lawyer by email or save it as a PDF – this is evidence of when you received it.

Step 2: Collect all relevant documents

Already now, within the deadline, prepare the documents related to the matter. These include emails, invoices, contracts, internal policies, accounting records, general meeting resolutions, and meeting minutes. Everything connected to the case. You should be clear about what you know and what may be difficult for you to prove.

Step 3: Legal consultation

Equally important is to contact a lawyer during the deadline stated in the demand letter. The attorneys from ARROWS, a Prague-based law firm, provide consultations in such cases with the understanding that this concerns the fate of your company or your personal liability. Based on the documents and your explanation, the lawyer will tell you:

Whether the asserted claim is relevant and whether the other party has a chance of success.
What the risks are if you decide to defend yourself.
What the chances are of an out-of-court settlement.
What it is appropriate to include in the response to the demand letter.

Step 4: Decision – Pay or take action?

Based on the legal analysis, you must decide. You have three main options:

Option A: Pay in full – If the claim seems fair to you and you feel that a lengthy court dispute is not worth it. This is typically the case if you are aware of your mistake and want to close the matter.
Option B: Negotiate – If you believe the claim is exaggerated or partly unjustified, you can try to negotiate a compromise. The other party often realises that court proceedings would take a long time and the costs would be high. It is often possible to agree on an amount lower than originally demanded.
Option C: Full defence – If you are sure you are not at fault, or that the claim is entirely incorrect. In that case, send a written response with your objections and prepare for possible court proceedings.

Step 5: Written response to the demand letter

If you do not decide to pay unconditionally, write a response. It should include:

Confirmation of receipt of the demand – So that you cannot later pretend you did not see it.
Your main arguments – Briefly and factually state what objections you have to the claim.
Reference to evidence – Specify which documents you will rely on.
Proposed solution – If you want to negotiate, state how you envisage the solution.

Do not write a long and emotional text. A professional one- to two-page response is more effective.

Step 6: Concluding a settlement or preparing for court

If you reach an agreement, draw up a written settlement agreement. This is important – an oral agreement is not sufficient. The agreement must include:

The amount and payment deadline
A statement that the matter is considered resolved
A clause that the injured party will not assert any further claims on this basis

The attorneys at ARROWS, a Prague-based law firm, will help you with such an agreement and ensure it cannot be challenged in the future.

If you do not reach an agreement, a lawsuit will be filed. This will then be followed by civil proceedings governed by the procedural rights and obligations set out in the Czech Code of Civil Procedure. In that case, legal representation is almost essential.

Possible issues	How ARROWS helps (office@arws.cz)
Incorrect calculation of the damage attributed to you – The other party picks an amount without clear maths or includes items that are not compensable.	We will carry out a detailed analysis of the calculation, challenge individual items, and demonstrate where the figures are inaccurate. We will protect you from overpaying.
Unfair allocation of fault – You are presented as the sole party at fault even though other actors also contributed.	We will analyse causation, verify where contributory fault by third parties may have occurred, and assert and seek to prove it.
Lack of evidence on the other party’s side – It is unclear how the damage was calculated in specific terms or what evidence proves it.	We will request transparency of the calculation and submission of evidence. If the other party is unable to provide it, we will object that the claim is incomplete.
Neglect of your defensive position – You believe you are in the right, but you are afraid to articulate it.	We will ensure your arguments are formulated clearly and professionally for the court/the other party. We will protect you from a tacit admission or an inadequate defence.
Risk of your defence rights becoming time-barred – If you do not keep proper communication, you may later be left without evidence that you actively addressed the situation.	We will monitor the timeline and secure copies of all relevant documents and communications. We will warn you if important deadlines are approaching.

Consequences – What happens if you do not respond

If you do not respond to the demand at all and the other party later files a lawsuit, what are the usual consequences?

Legal consequences

Judgment against you – The court will usually decide based on the available evidence. If you do not appear at hearings at all or do not actively defend yourself, the court may give greater weight to the other party’s arguments. Your absence or passivity may worsen your procedural position.
Joint and several liability – If you breached the duty of due managerial care together with other members of the statutory body (e.g., another managing director), you will be liable jointly and severally (). This means the injured party may recover the full amount from any of the responsible members, who may then have to settle their respective shares among themselves.
Liability for the company’s debts in the event of insolvency – If the company is insolvent and a member of its body breached the duty of due managerial care, they may, under certain conditions, be obliged to provide creditors with performance in the amount of the difference between the total debts and the value of the company’s assets (), or be liable for the company’s debts if they failed to ensure proper asset management and the company was threatened with insolvency ().

Financial consequences

The damages themselves – If it is proven that you breached the duty of care, you will have to pay the full damage the other party manages to prove. This may be tens or hundreds of thousands of Czech crowns, sometimes more.
The other party’s legal costs – If the other party wins in court, you will also have to pay its legal representation costs (attorneys’ fees), which are calculated under the Czech Attorney Tariff and may be a significant additional amount.
Default interest – If you do not reach an agreement and payment is not made on time, default interest will accrue. It is determined and its amount is set as the Czech National Bank repo rate valid on the first day of the calendar half-year in which the default occurred, increased by 8 percentage points.

Other impacts

Reputation – Public court proceedings mean that information about the dispute may become public. For an individual, this may mean personal reputational harm; for a business, it may mean a loss of trust among partners and clients.
Personal liability – For certain types of breaches of the duty of care (especially where you acted intentionally, e.g., embezzlement or fraud, or with very gross negligence and caused substantial damage), you may also face criminal liability for breach of duty in the administration of another’s property () or other criminal offences.

Frequently asked questions on consequences and liability

1. Can I be criminally prosecuted for breaching the duty of due managerial care?
A breach of the duty of due managerial care is not automatically a criminal offence. However, if you acted intentionally (embezzlement, fraud) or with very gross negligence and caused damage, you may face criminal prosecution. The attorneys at ARROWS, a Prague-based law firm, will tell you whether this is realistic in your case.

2. Does that mean they will take all my money?
If the court decides, you must pay the awarded compensation. It does not have to be “everything”, but it can be a substantial amount. There are enforcement procedures (e.g., enforcement by a bailiff) through which a creditor enforces the claim; however, enforcement also takes your basic living needs into account and you cannot be deprived of all your assets.

3. How long does court proceedings take?
A standard civil damages dispute takes 18 months to 3 years at first instance. If you appeal, it typically takes another 1–2 years. This means a lengthy and costly process. That is precisely why it can sometimes pay off to negotiate earlier.

How to protect yourself going forward – Prevention

The best defence is not to defend yourself in court, but to avoid getting into such a situation in the first place. Here are a few practical tips:

Keeping high-quality documentation

All important decisions should leave a documentary trail. This includes meeting minutes, emails in which you confirm your own reasoning, invoices documenting how money flows. If you can later say without difficulty: “Here is an email from 15 September where I consulted a lawyer and they said it was fine,” your position is much stronger.

Regular training and updates

Legislation changes. The duties of managers and executive directors evolve. We recommend attending a lecture or seminar on the latest trends in Czech commercial law at least once or twice a year. The attorneys at ARROWS advokátní kancelář, a Prague-based law firm, provide training for managers on precisely these topics.

Timely advice

There is no need to wait for a problem. If you are preparing a major transaction, want to change governance structures, or are unsure whether certain conduct complies with the law, contact a lawyer in advance. Preventive advice costs less than having to defend yourself in court later.

Liability insurance

Some owners and managers arrange professional liability insurance or special insurance for members of statutory bodies (so-called D&O insurance). This insurance may partially cover you if someone asserts a claim against you for breach of the duty of due managerial care.

Clear internal processes

Create internal policies that clearly define who may make decisions in which situations and under what conditions. If everyone in management understands their responsibility and knows how they should act, the risk of erroneous conduct is reduced.

Damages and limitation periods – When it can no longer be litigated

Here is a practical point you should know: claims for damages do not last forever. There are limitation periods that may, in certain ways, work in your favour.

How limitation works

There are two periods that run concurrently (Section 629 and Section 636 of the Czech Civil Code):

Subjective three-year period – Runs from the moment the injured party learned of the damage and who caused it. If someone learns of the damage only after 2 years, they have 3 years from that moment to sue you.
Objective ten-year period – Runs from the moment the damage actually occurred, regardless of when the injured party learned of it. If 10 years have already passed since the damage occurred, the claim can no longer be successfully asserted.

The claim becomes time-barred upon expiry of whichever period ends earlier. This means that if the injured party was very slow and only remembered you after 8 years, you already have some protection – at that point, only 2 years remain of the ten-year period.

How limitation periods are affected

The running of the limitation period is suspended (stopped) or interrupted if:

You file a lawsuit – By filing a claim with the court, the running of the limitation period is suspended (). If the proceedings are duly continued, the limitation period does not run. After the proceedings end, a new limitation period begins to run.
The opposing party acknowledges the debt in writing – If the debtor acknowledges an existing debt in writing, the limitation period is interrupted and a new limitation period begins to run, which is always ten years ().
You assert the right in criminal proceedings (adhesion motion) – If the claim for damages is asserted as a so-called adhesion motion within criminal proceedings, the limitation period is suspended for the duration of the criminal proceedings ().

If an interruption occurs, a new period begins to run. In the case of acknowledgement of debt, it is a new ten-year period. Suspension of the period means that once it ends, the period continues running.

Final summary

If you have received a demand for compensation for damage due to a breach of the duty of due managerial care, do not see it only as a threat. It is also the last moment when you can clarify the matter out of court and still have room to negotiate. Court is the last resort – lengthy, expensive, and unpredictable.

Key takeaways:

Due managerial care is a legal standard that applies to all members of statutory bodies. Failure to meet it means liability for damage.
The burden of proof largely falls on you – if the other side claims you breached the duty of care, you must prove that you acted properly. The other side only has to prove that damage occurred and that there is a causal link.
Your response to the demand is crucial – ignoring it or mounting a weak defence means the court may give greater weight to the other side’s arguments.
You have defence options – incorrect calculation, lack of evidence, contributory fault, limitation of the claim, the business judgment rule.
Time and high-quality legal advice are key – if you have the matter explained immediately by a lawyer, you will eliminate uncertainty and can defend yourself effectively.

If you are in such a situation and need professional assistance, the attorneys at ARROWS advokátní kancelář, a Prague-based law firm, have many years of experience defending against claims for breach of the duty of due managerial care.

They can provide you with a legal analysis, advise you during negotiations, arrange representation in Czech courts, and help you achieve the best possible outcome. Contact us via office@arws.cz and describe the situation. We will consider how best to assist you.

Come to us with confidence

If you are in a situation where you have received a demand for compensation for damage due to a breach of the duty of due managerial care and do not know how to proceed, contact the attorneys at ARROWS advokátní kancelář, a Prague-based law firm. We offer:

A fast legal analysis – within days, we will assess your situation and tell you how strong your defence is.
Representation in negotiations – if you want to negotiate, we will conduct negotiations with the other side on your behalf.
Preparation of your defence – we will help you prepare a written response and ensure evidence is collected.
Full representation in court – if court is unavoidable, we will provide comprehensive legal representation.
Long-term legal advice – so that you do not end up in a similar situation again.

Contact us at office@arws.cz and book a time for a consultation. Everything is handled quickly and confidentially.

Our Prague-based law firm is insured for professional liability up to CZK 400,000,000, giving you the assurance that your matter is in safe hands with us. We are part of the ARROWS International network, so if your case has an international element, we can assist you with that as well.

FAQ: Most common questions on breach of the duty of due managerial care and a demand for compensation

1. What is the difference between a demand letter and a lawsuit? If a demand letter arrives, does it already mean I can lose?
A demand letter is not court proceedings yet. It is a final warning and an invitation to reach an agreement. If you respond and defend yourself professionally, you still have room to act. A lawsuit is the formal start of court proceedings. These are different things. Don’t panic just because a demand letter arrives – it is actually an opportunity to clarify the matter before it is too late. The attorneys at ARROWS, a Prague-based law firm, will help you assess how strong your position is.

2. Do I need a lawyer to defend myself? Can’t I defend myself on my own?
Legally, it is possible. If you are absolutely sure of your position and have clear evidence, you can try to defend yourself on your own. In practice, however, it is almost never the optimal solution. Legal language, procedural pitfalls, details about the burden of proof – all of this has its rules, which attorneys know. If you make a mistake, you may lose a case you otherwise had a chance to win. The attorneys at ARROWS, a Prague-based law firm, are familiar with all aspects and ensure that your defence is as effective as possible.

3. What happens if I believe the other party made up the demand out of thin air? How do I prove it?
If you believe the claim is baseless, send a substantive response with reasons. The other party must prove that you breached the duty of due managerial care and that this caused damage. If it has no evidence, its claim should be dismissed by the court. The attorneys at ARROWS, a Prague-based law firm, will help you with proper and professional arguments that carry weight in Czech courts.

4. How long do court proceedings take and how much does a lawyer cost?
Court proceedings typically take 1.5 to 3 years at first instance. If you appeal, add another 1–2 years. Attorneys’ fees are calculated under the Czech attorneys’ tariff and depend on the complexity of the case and the value of the dispute. As a guideline: a simpler defence without court proceedings (advice and correspondence) may cost you from several thousand to tens of thousands of Czech crowns. Full representation in court then costs hundreds of thousands to low millions of Czech crowns (depending on the amount in dispute). In general: investing in a lawyer at the beginning is always cheaper than not having one later.

5. Is there any compromise? Do I have to pay everything?
Yes, there is. Negotiation is a natural part of dispute resolution. If both parties realise that court proceedings would take a long time and be costly for both sides, they often agree on a compromise solution, which may be lower than the originally claimed amount. The attorneys at ARROWS, a Prague-based law firm, have experience with such negotiations and know what is realistic in the market.

Disclaimer: The information contained in this article is of a general informational nature only and serves for basic orientation in the matter based on the legal status as of 2026. Although we take the utmost care to ensure maximum accuracy of the content, legal regulations and their interpretation evolve over time. We are ARROWS advokátní kancelář, an entity registered with the Czech Bar Association (our supervisory authority), and for maximum client security we are insured for professional liability with a limit of CZK 400,000,000. To verify the current wording of regulations and their application to your specific situation, it is necessary to contact ARROWS advokátní kancelář directly (office@arws.cz). We accept no liability for any damages arising from the independent use of the information in this article without prior individual legal consultation.

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