What are the threats for entrepreneurs from the ban on conducting business activity?
The freedom to start and run a business, own business, enterprise or company is one of the fundamental rights of every human being. Regardless of the enterprise, whether it is a beauty salon, an accounting office or a production plant, it is hard to imagine a situation in which the right to freely practice and gain employment would be limited. However, the law provides for an extremely severe measure, which is the prohibition of conducting business activity against persons who, while conducting business activity, have done so in a highly irregular manner.
Business ban as a disciplinary measure against dishonest entrepreneurs
The possibility of prohibiting business activity in relation to entrepreneurs results from the provisions of the Bankruptcy Law. It should be noted here that every person planning to start their own business, even briefly, should read the provisions of this Act, because ignoring the obligations arising from it may pose serious threats to a careless entrepreneur and his enterprise.
A ban on running a business can only be ordered by a court.
Therefore, the prohibition takes the form of a ruling, i.e. a court order, and not a decision of a state or local government administration body.
In practice, the prohibition of conducting business activity means that it is impossible to conduct business activity:
on own account (on the basis of an entry in the Central Register of Economic Activity);
as part of a civil law partnership;
a ban on serving as a member of the supervisory board, member of the audit committee, representative or attorney of a natural person conducting business activity in the field of this activity, a commercial company, state enterprise, cooperative, foundation or association.
The imposed prohibition is very broad and in practice makes it impossible to conduct business, limiting the possibility of paid work, to work on the basis of an employment contract or civil law contracts, e.g. contract of mandate or contract for specific specific work.
Who is at risk of an operating ban?
The above prohibition may be imposed against persons who have seriously neglected their obligations under the Bankruptcy Law regarding the payment of liabilities and bankruptcy proceedings. The most important category of entrepreneurs at risk of a ban are people who have not filed for bankruptcy within the statutory deadline. It is worth noting here that the debtor, i.e. a natural person or a business entity that does not pay its financial obligations and therefore falls into a state of insolvency, is required to file for bankruptcy within thirty days of the occurrence of such a state. The deadline for submitting the application has been extended to thirty days from the two-week period in force for many years.
The debtor has 30 days to file for bankruptcy from the date of the insolvency.
Determining the moment of insolvency is complicated and requires a thorough financial analysis, because usually entrepreneurs in a difficult financial situation try to pay at least part of the debt. The Supreme Court has repeatedly emphasized that it is necessary to make an objective view of the economic situation of the entrepreneur. In practice, it has been presumed that the state of insolvency occurs in the event of a three-month arrears in payment of receivables. Therefore, if the arrears on unpaid invoices are at least three months, the debtor is required to file for bankruptcy and start bankruptcy proceedings.
In the case of self-employed entrepreneurs, it is obvious that the obligation to submit the application rests with the entrepreneur himself.
In the event of insolvency of legal persons (e.g. partnerships, joint-stock companies, limited liability companies), the application must be submitted by a person who has the right to represent the company and conduct its affairs, both independently and jointly with other persons. This will be, for example, a member of the company's management board.
According to an important resolution of the Supreme Court, the resignation of a management board member does not protect him from the negative consequences of previously undertaken actions within the company, and a management board member may be held liable even if the debtor's or applicant's debt arose later, after the management board member resigned from his function (see the resolution of the Supreme Court of December 1, 2017, issued in the case No. III CZP 65/17).
In the case of self-employed entrepreneurs, the court may order a ban on conducting business activity also when the state of insolvency is the result of intentional action or gross negligence. Therefore, if an entrepreneur sets up an enterprise only in order to, for example, buy goods for which he does not intend to pay or deliberately ceases to pay receivables resulting from issued invoices, he risks losing the possibility of conducting business activity.
Subsequent categories of people at risk of being subject to a measure in the form of a ban on conducting business activity relate to cases of improper conduct during the ongoing bankruptcy proceedings - people who, despite the existence of such an obligation, do not issue the debtor's documents (e.g. accounting books, correspondence, but also electronic data). stored on portable data carriers and in the memory of computers, laptops, mobile phones), destroy documents, destroy or hide the debtor's property, contributing to the inability to satisfy creditors and repay the debtor's debt, ignore the obligations imposed by the court in the course of bankruptcy proceedings or orders of the judge in charge proceedings after declaration of bankruptcy.
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Who can apply for a ban?
An application for a ban on conducting business activity may be submitted by entities indicated in the Act - including The President of the Office of Competition and Consumer Protection and the Polish Financial Supervision Authority, receiver, temporary court supervisor and the compulsory administrator. The most important category of entities that may file an application are prosecutors and creditors. If criminal proceedings are pending against the entrepreneur due to irregularities in running the business (e.g. fraud or extortion), the entrepreneur must take this type of application into account. Usually, however, applications are submitted by creditors - entities aggrieved by the entrepreneur's actions, who thus want to bring an unreliable contractor to liability.
Experience shows that applications for the prohibition of business activity against an entrepreneur are very often submitted to courts by the Social Insurance Institution and Tax Offices. Arrears in paying taxes and insurance premiums can have catastrophic consequences, not least in the form of growing debt and significant late payment interest. Although paying off only some of your debts at the expense of other creditors is a crime. In the event of any arrears in relation to the above-mentioned entities, particular caution should be exercised.
The good news for entrepreneurs struggling with financial difficulties is the fact that the possibility of submitting an application is limited in time - three years from the end of insolvency and one year from the date of cancellation or completion of bankruptcy proceedings.
Optional nature of the operating ban
The ban on conducting business activity is not adjudicated forever, it is limited in time. Depending on the court's decision, this may be from one to ten years.
The ban on conducting business activity is issued for a period from one to 10 years.
The prohibition is optional - the court may, but does not have to, pronounce it. Of course, the duty of the judge conducting the proceedings is to investigate the situation of the entrepreneur and all the circumstances that led to the emergence of such an unfavorable situation for the entrepreneur, which is the cause of the threat of a ban. The court must take into account the degree of the entrepreneur's guilt, i.e. how the entrepreneur caused the insolvency or contributed to its creation, and how much his creditors were harmed by the entrepreneur's conduct. Examples from court judgments show that if the cause of the entrepreneur's problems was, for example, a serious illness that made it impossible to actually conduct business and meet the obligations incurred, such entrepreneur will be treated much more leniently than a consciously and deliberately incurring debt that has caused serious financial problems for his contractors. .
The entrepreneur should comment on his case
The ban on conducting business activity is adjudicated after a hearing. A participant in the proceedings, i.e. an entrepreneur threatened by the ruling of the prohibition in question, has the right to participate in this hearing, has the right to be heard and has the right to submit evidence motions for his defense. The entrepreneur should carefully analyze what applications he wants to submit in the course of the procedure. The catalog of evidence is basically unlimited - they can be witnesses, documents, recordings, depending on the type of case and its circumstances.
According to the case law of the Supreme Court and the legislator's desire, the main goal of the institution of a ban on conducting business activity is to eliminate unreliable entities from economic circulation, which are harmful to its other participants. When starting a business, it is worth bearing in mind that failure to settle the company's financial obligations may pose a significant risk in the form of the risk of ruling a ban on conducting business activity in the future.