Insolvency proceedings in Luxembourg: liability

In certain cases, directors of the company which faces insolvency proceedings in Luxembourg can be held liable for mismanagement

Criminal liability

Directors of a company which is subject to insolvency proceedings in Luxembourg (bankruptcy) may be subject to fraudulent bankruptcy according to articles 573 to 578 of the commercial code.

It will be up to the receiver (“curateur”) to file a criminal claim if he thinks that the conditions for fraudulent bankruptcy are fulfilled. This may include violation of accounting obligations, or the failing to file for bankruptcy in due time which is within one month from the date that the company has ceased its payments.

Civil liability

Directors of a company in bankruptcty and subject to insolvency proceedings in Luxembourg can be held liable pursuant to articles 495, 495-1, and 444-1 of the commercial code. According to article 495 of the commercial code, a director can be declared personally bankrupt in case of bankruptcy of a company, if such director has:

• used the company to act in his own personal interest;
• used the company’s assets as if they were his own;
• carried on, in his personal interest, any loss-making activity that could only lead the company into bankruptcy.

Article 495-1 further states that the commercial court may decide that the directors of a company can be held liable for the outstanding debts of the company in bankruptcy, if gross negligence by the directors has contributed to the bankruptcy and if the assets of the company are not sufficient to pay the company’s creditors.

According to article 444-1 of the commercial code, the commercial Court may prohibit a director from conducting directly or indirectly any commercial activity as well as any function of director, manager, auditor, if such director has contributed by a serious misconduct to the bankruptcy of the company.