When a company cannot pay: when a managing director must file for bankruptcy and what they personally face

Invoices are months overdue, suppliers are calling and there is less in the account than is needed for wages. In such a moment a managing director naturally focuses on keeping the company going. From a certain point, however, a 30-day deadline to file a bankruptcy petition is running, and missing it can have personal consequences: a penalty of up to €12,500, damages to creditors, a three-year ban on acting as a managing director, and criminal prosecution. We explain how to tell a temporary cash shortfall from insolvency, when the duty to file a bankruptcy petition arises, and how to proceed so that the director does not end up personally at risk.

A temporary cash shortfall is not insolvency

A company can have an empty account even when it is essentially healthy. A large customer pays a month later, the bank postpones a loan drawdown by a few weeks, or a seasonal drop in sales comes. Act No. 7/2005 Coll. on Bankruptcy and Restructuring (the "ZKR") therefore does not link the duty to file a petition to the first unpaid invoice.

The law distinguishes imminent insolvency, illiquidity and over-indebtedness. Only the latter two are insolvency (§ 3(1) ZKR), and only with them does the duty to file a bankruptcy petition arise.

Illiquidity: 90 days, two obligations, several creditors

A company is illiquid if it is unable to perform, 90 days past the due date, at least two monetary obligations to more than one creditor (§ 3(2) ZKR). One unpaid invoice to one supplier is therefore not yet enough. Two invoices to two different creditors that the company cannot pay even 90 days past due already meet this element.

What decides is the actual inability to pay, not merely the number of unpaid invoices. The Supreme Court of the SR, in its judgment of 27 January 2026, ref. 5Obdo/16/2025, held that the mere existence of two obligations past due towards two creditors is not enough to conclude illiquidity unless it is also proven that the company could not pay them from its monetary assets. The court assessed an earlier version of the law. As today's definition also rests on the inability to perform, the same approach, in our view, applies now too.

The law also lays down a presumption of solvency. A company is deemed solvent if it can reasonably be expected to continue in operation and its coverage gap is less than a tenth of its due monetary obligations, or falls below that threshold within 60 days at the latest. The coverage gap is the difference between due monetary obligations and the company's monetary assets.

What counts as monetary assets is set by Decree of the Ministry of Justice of the SR No. 197/2022 Coll. It includes cash on hand and in bank accounts, but also receivables due within 30 days or at most 30 days past due, where the debtor can reasonably be expected to pay in time (§ 2(1) of the Decree). Conversely, obligations whose maturity the company is negotiating with the creditor and the creditor has confirmed its interest in negotiating in writing are not counted among due obligations (§ 3(b) of the Decree).

The law also presumes illiquidity where a claim against the company cannot be recovered by enforcement (§ 3(2) ZKR).

Over-indebtedness: when debts exceed assets

A company is over-indebted if it keeps accounts, has more than one creditor, and the value of its obligations exceeds the value of its assets (§ 3(3) ZKR). The accounts are the starting point, but an expert's opinion takes precedence. The expected results of continued operation of the business are also taken into account, where the company can reasonably be expected to continue.

Loans with a subordination undertaking are not counted among the obligations. This is a written agreement under which, in the event of insolvency, the creditor is paid only after the other creditors. It is concluded for at least three years or for an indefinite period (§ 408a of the Commercial Code, the "ObZ"). A shareholder financing the company can thus remove over-indebtedness by subordinating a sufficiently large loan.

An important signal is negative equity in the financial statements. If the statements show it, the director should assess without delay whether the company is over-indebted within the meaning of the law — for example whether an expert valuation of the assets or a subordination of loans would change the picture.

Imminent insolvency: time to rescue

A company faces imminent illiquidity if, taking all circumstances into account, it can reasonably be expected to become illiquid within 12 calendar months (§ 4(2) ZKR). The duty to file a bankruptcy petition does not yet arise in this phase. The law, however, requires the company to prevent insolvency and, without undue delay, adopt suitable and proportionate measures to avert it (§ 4(3) ZKR).

Imminent illiquidity can be assessed from a projection of the monthly development of the coverage gap over the next 12 months. Decree No. 197/2022 Coll. also allows a simplified form of such a projection, which the Ministry of Justice of the SR has published on its website (§ 4 of the Decree). In this phase the company may use a public or non-public preventive restructuring under Act No. 111/2022 Coll. on dealing with imminent insolvency.

The Commercial Code adds rules on a company in crisis. A company in crisis is, for example, an s.r.o. or a joint-stock company that is insolvent or faces insolvency, and also where the ratio of its equity to obligations falls below 8 to 100 (§ 67a ObZ). A loan provided to a company in crisis by, for example, a managing director or a shareholder with a stake of at least 5 % must not be repaid while it is in crisis (§ 67c and § 67f(1) ObZ). If it is repaid, the managing directors in office at the time are jointly and severally liable for its return (§ 67f(2) ObZ).

When the 30-day deadline for the bankruptcy petition starts

A company in insolvency must file a petition to declare bankruptcy within 30 days of learning, or being able to learn with due care, of its insolvency. This duty is also borne, on the company's behalf, by each managing director (§ 11(2) ZKR). The duty applies only to legal entities, not to sole traders.

What is decisive is not only when the director actually knew of the insolvency. The deadline also runs from the moment a director who monitors the accounts, the maturity of invoices and the state of the accounts as is expected of them would have noticed the insolvency. When exactly that moment occurred is, per the Supreme Court of the SR, a question of fact decided by the courts in the specific case (resolution of 20 October 2025, ref. 3ObdoK/5/2024). In the dispute the Supreme Court decided, the trustee argued the director could have learned of the over-indebtedness at the latest on the day the financial statements showing negative equity were drawn up.

A director is not excused by merely waiting for the ordinary financial statements. In a dispute assessed by the Supreme Court of the SR, the courts stated the director could have learned of the over-indebtedness at the latest on the day the statements for the previous year were drawn up, and that if they had doubts they should have had extraordinary financial statements drawn up. The deadline thus lapsed 30 days after the statements were drawn up, although the director filed the petition more than half a year later. The Supreme Court found their reasoning in this part sufficient (resolution of 28 November 2024, ref. 2Obdo/50/2023).

Missing the deadline does not end the duty. The Supreme Court of the SR, in its resolution of 30 January 2025, ref. 5Obdo/12/2024, stated that the duty to file the petition does not cease on the lapse of the 30 days and lasts without limit throughout the whole period while the company remains insolvent. A director who missed the deadline should therefore file the petition without further delay.

If the company has several managing directors, each of them bears the duty. A director is not protected even by a resolution of the general meeting forbidding them to file the petition. The Commercial Code, in relation to the duty to file a petition to declare bankruptcy, expressly excludes a director from escaping liability by reference to an instruction of the general meeting (§ 135a(3) ObZ).

The petition is filed electronically on the prescribed form into the court's electronic mailbox (§ 12(1) ZKR). Before filing, the petitioner must also pay into the court's account an advance on the remuneration and expenses of the preliminary trustee (§ 13(1) ZKR), which is €1,500 (§ 7(1) of Decree of the Ministry of Justice of the SR No. 665/2005 Coll.). If the company does not have even the advance, this must be dealt with right at the start of the deadline.

The financial statements also matter. If, at the latest as of the day bankruptcy is declared, the company fails to comply with the duty to file financial statements in the collection of deeds under § 40(2) to (5) ObZ, the law presumes the director did not file the petition in time, and they cannot be relieved of the duty to pay the contractual penalty (§ 74(7) ZKR).

What a managing director must not do when the company is insolvent

From the moment the company learned, or could have learned with due care, of the insolvency, it must not pay any creditor more than would fall to that creditor in bankruptcy (§ 3(4) ZKR). The exceptions are payments strictly necessary to maintain the operation of the business towards unrelated persons, and insolvency that arose during a public preventive restructuring. Creditors with equal rights are to have an equal position, and favouring some of them is inadmissible (§ 6 ZKR).

The Supreme Court of the SR put it simply in its judgment of 16 August 2012 (ref. 6 Tdo 62/2011). A company that does not have enough money for all its due obligations must satisfy all creditors proportionally and evenly — employees, the tax office, insurers and business partners. If it cannot, it must adjust its management or end the business.

If the company nevertheless pays selected creditors or returns a loan to a shareholder, the trustee may, after bankruptcy is declared, challenge such a payment. A preferential act carried out during insolvency can be challenged if made in the last year before the start of the bankruptcy proceedings. For related persons — such as a managing director, a shareholder with a qualified stake or their close persons — the period is extended to three years (§ 59 and § 9 ZKR). An act carried out with the intent to harm creditors, of which the other party knew or must have known, can be challenged up to five years back (§ 60 ZKR).

What a managing director faces for not filing in time

A contractual penalty of €12,500

The law provides that, in the event of a late filing of the petition, a contractual penalty has been agreed between the company and the director in the amount of half the lowest registered capital of a joint-stock company (§ 11(2) ZKR). Since the registered capital of a joint-stock company must be at least €25,000 (§ 162(3) ObZ), the penalty is €12,500. It applies regardless of whether the director ever agreed it with the company, and it cannot be excluded by a contract or by the memorandum of association.

After bankruptcy is declared, the trustee calls on the directors who, in the trustee's view, are to pay the penalty, to pay it into the general estate within at least 15 days or to prove that the duty did not arise for them. If they do not, the trustee files an action (§ 74a(1) and (2) ZKR). The court imposes the penalty if the director does not prove the duty did not arise, and it cannot reduce it (§ 74a(4) ZKR).

In recent disputes, however, the courts insisted that the trustee must first assert and prove when the company became insolvent and when the duty to file the petition arose for the director. Only then is it for the director to prove the ground on which they are relieved of the penalty. The Regional Court in Banská Bystrica thus upheld the dismissal of a trustee's action that relied mainly on two enforcement proceedings against the company and on the directors' statements, and the Supreme Court of the SR rejected the trustee's appeal on a point of law (resolution of 24 March 2026, ref. 5ObdoK/1/2026). The Supreme Court, however, did not decide the question of the allocation of the burden of proof on the merits, and the trustee's appeal relied on decisions of other courts that placed the burden on the director. We deal with the allocation of the burden of proof in more detail in our article on the action against a managing director for damages.

The limitation period starts to run only on the declaration of bankruptcy. The company cannot waive the claim, conclude a settlement agreement about it or set it off. The penalty does not exclude a claim for damages exceeding it (§ 11(2) ZKR). If the company had three managing directors, the trustee may claim the penalty from each of them, but from each only once.

The penalty in a small bankruptcy

A small bankruptcy is a simplified bankruptcy for smaller companies, which only the company itself may propose over its assets. The conditions include that, under the last five financial statements, it had neither obligations nor assets over €1,000,000, has its financial statements filed, and its managing director does not serve as a statutory body in more than ten companies (§ 106c(1) ZKR). The advance on the costs of a small bankruptcy is €500 (§ 8(2) of Decree No. 665/2005 Coll.).

In a small bankruptcy the €12,500 contractual penalty does not apply (§ 106k(5) ZKR). If, however, the company showed negative equity before the small bankruptcy, and after it is closed the unsatisfied claims of registered creditors exceed €50,000, the court imposes on the director in office as of the day bankruptcy was declared a penalty of €1,000 to €10,000. In doing so it has regard to how long the company showed negative equity (§ 106k(1) and (2) ZKR). The director's liability for damages to creditors is not affected (§ 106k(3) ZKR). If a registered creditor, within six months, pays an advance and proposes it, the court converts the small bankruptcy into an ordinary bankruptcy (§ 106j ZKR), and in that case the law does provide for the contractual-penalty claim (§ 11(2) ZKR).

Damages to creditors and to the company

A director is liable to the company's creditors for the damage caused to them by not filing the bankruptcy petition in time (§ 11a(1) ZKR). The law helps creditors with two presumptions. If bankruptcy was not declared at all for lack of assets, was cancelled on that ground, or enforcement against the company ended for lack of assets, it is presumed the petition was not filed in time (§ 11a(2) ZKR). If a different amount of damage is not proven, the damage is presumed to be that part of the creditor's claim that remained unpaid (§ 11a(3) ZKR).

How this looks in practice is shown by a dispute in which the sole managing director of an s.r.o. admitted the company already in 2016 had nothing to pay for ordered goods, and did not file a bankruptcy petition. In defence they argued that neither the company nor they had money to file. Enforcement against the company was stopped for lack of assets, and the courts ordered the director to pay the supplier the unpaid claim of €1,784.03 with accessories. The Supreme Court of the SR rejected their appeal on a point of law (resolution of 30 January 2025, ref. 5Obdo/12/2024).

The presumption as to the amount of damage is, however, rebuttable. The Supreme Court of the SR, in its resolution of 28 November 2024, ref. 2Obdo/50/2023, stated the amount of damage is determined by how much the creditor would have obtained in bankruptcy had the director filed the petition in time. If the director claims the creditor would not have obtained more, or only a part, even with a timely petition, they must prove it and the courts must address their objection. Because they did not do so in that dispute, the Supreme Court quashed the judgments ordering the director to pay €22,678.88. Only where the director does not prove otherwise does the presumption apply and they pay the whole unpaid part of the claim. The creditor need not first exhaust other options, for example appeal against the stopping of the bankruptcy.

The creditor's claim becomes time-barred at the earliest one year after the bankruptcy proceedings are stopped, bankruptcy is cancelled, or enforcement ends for lack of assets (§ 11a(4) ZKR). The director is relieved of liability on the same grounds as for the contractual penalty (§ 11a(5) ZKR).

Alongside this, the director is also liable to the company itself for the damage caused to it by breaching their duties (§ 135a(2) ObZ). If a creditor cannot obtain payment from the company, they may assert this claim of the company against the director in their own name. After bankruptcy is declared, the trustee does this for the creditors (§ 135a(5) ObZ).

A three-year ban on acting as a managing director

A final judgment ordering payment of the contractual penalty or damages to a creditor for a late petition is at the same time a decision on disqualification (§ 74a(6) and § 11a(6) ZKR). A disqualified person must not, for three years from finality, hold the office of a member of a statutory or supervisory body in any company or cooperative, and must not be a procurator either (§ 13a(1) ObZ). On the finality of the decision they cease to be a managing director in all companies at once (§ 13a(3) ObZ). Anyone who nevertheless acts for the company is liable to the creditors towards whom they so acted for the company's obligations (§ 13a(5) ObZ).

Obstruction of bankruptcy proceedings and creditor favouritism

The Criminal Code punishes a person who obstructs bankruptcy proceedings by failing to perform a duty imposed by law, including the duty to file a petition to declare bankruptcy in time. They face imprisonment of six months to three years. If they cause greater damage, i.e. damage over €20,000, or commit the act from a special motive or in a more serious manner, two to eight years apply (§ 242 and § 125(1) of the Criminal Code).

A managing director of a company that is unable to perform its due obligations and favours one creditor at the expense of the others may commit creditor favouritism. The base sentence is up to one year, up to two years for greater damage, and one to five years for damage of a large extent, i.e. over €650,000 (§ 240 of the Criminal Code). We write in more detail about the criminal dimension of tax debts in our article VAT debt and a managing director's criminal offence.

The Supreme Court, in its judgment 6 Tdo 62/2011, stressed that both offences require intentional fault. It also stated that creditor favouritism is not committed if the other creditors have the opportunity to satisfy themselves from the debtor's remaining assets. If the director committed the offence in connection with the exercise of their office, the court may also impose a ban on activity for one to ten years (§ 61(2) of the Criminal Code).

When a managing director is relieved of the penalty and damages

The law knows three grounds on which a director is relieved of the contractual penalty (§ 74a(5) ZKR). The same grounds apply to damages to creditors (§ 11a(5) ZKR):

• They acted with due care. As an example the law gives a director who could not file the petition for want of cooperation from the other directors, and therefore, without undue delay, filed in the collection of deeds a notice that the company is insolvent.
• They came to the company to overcome the insolvency. This concerns a director appointed during insolvency with the aim of overcoming it, who filed the petition without undue delay once they found the measures adopted would not help.
• They steered the company into restructuring. Within the 30-day deadline they instructed a trustee to prepare a restructuring opinion and filed a petition to allow a restructuring, which the court allowed.

How this looks in practice is shown by the bankruptcy of a Košice s.r.o. Its financial statements for 2013 showed negative equity of €80,943. The company filed a bankruptcy petition only in February 2016, and the trustee sued the directors for a contractual penalty of €12,500 each. The courts dismissed the actions.

The directors, per the courts, acted with due care. They managed to reduce the negative equity in 2014 to €278, the company had enough orders, worked properly, customers paid its invoices and the shareholders financed it from their own money. The Regional Court in Košice added that a trustee cannot apply the contractual-penalty provision mechanically and must examine how the director acted. The Supreme Court of the SR rejected the trustee's appeals on points of law (resolutions of 20 February 2025, ref. 2ObdoK/2/2024, and of 20 October 2025, ref. 3ObdoK/5/2024).

The outcome rested on specific findings of fact. A director who merely watches a worsening situation and does nothing cannot rely on this case.

What to do when the company cannot pay

• Calculate the coverage gap. Compare due obligations with the cash and receivables that will realistically come in within 30 days. If the difference is greater than a tenth of the obligations and does not fall below within 60 days, the presumption of solvency does not apply.
• Look at the accounts, not just the account. Negative equity is a signal of possible over-indebtedness. Check whether an expert opinion or a subordination of shareholders' loans would change the picture.
• Negotiate with creditors in writing. Obligations whose maturity you are negotiating and the creditor has confirmed its interest in negotiating in writing are not counted into the coverage gap.
• Do not pay yourself or related persons first. Returning a loan to a shareholder or a payment to a related company in crisis may be clawed back after bankruptcy is declared, and the director may be liable for it.
• Keep your financial statements filed. Unfiled statements in the collection of deeds deprive the director of the chance to be relieved of the contractual penalty and the company of the option of a small bankruptcy.
• Record decisions and their reasons. Minutes, financial plans and communication with the bank or creditors are evidence that you acted with due care.
• If insolvency cannot be averted, act within 30 days. If the company has a chance, consider a restructuring, which must be applied for within the same 30-day deadline. For a smaller company check the conditions of a small bankruptcy. If the other directors do not join the petition, file in the collection of deeds a notice of insolvency.
• If you missed the deadline, file anyway. The duty lasts throughout the insolvency, so every further day without a petition increases the risk.