A Shareholder Is Not Liable for Company Debts Merely Because of Their Status

On September 30, 2026, the Bankruptcy Chamber of the Commercial Cassation Court within the Supreme Court of Ukraine issued a ruling in case No. 916/5286/24 (916/2403/25), clarifying the limits of joint and several liability for a debtor's failure to file an application to open bankruptcy proceedings within the statutory period.

The dispute arose during the bankruptcy proceedings of Ukrainian Agro-Industrial Enterprise LLC. The liquidator sought to recover more than UAH 3.1 million from two directors and two shareholders of the company, citing prolonged insolvency and their failure to initiate bankruptcy proceedings in a timely manner. The court of first instance dismissed the application, while the appellate court imposed liability on all four individuals. The Supreme Court modified that outcome: it overturned the findings of liability against the former director and both shareholders but upheld the recovery against the director who continued managing the company after the CUBP came into effect.

Why Shareholders Are Not Liable on the Same Basis as Directors

Article 34(6) of the CUBP requires a debtor to apply to the commercial court within one month when the statutory conditions indicating insolvency are met. Failure to comply may give rise to joint and several liability for individuals entrusted with the relevant management functions. The central issue is identifying who falls within that category.

The Supreme Court distinguished between the powers of the general meeting of shareholders or members and those of the company's executive body. Shareholders make corporate decisions, determine strategic directions, and exercise oversight as provided by law. Day-to-day management, assessment of the company's financial position, and the initiation of bankruptcy proceedings, however, fall within the responsibilities of its executive body. Accordingly, the persons subject to joint and several liability under Article 34(6) of the CUBP are the director or members of the debtor's executive body. A shareholder may be held liable under this provision only if they also exercise the corresponding executive management powers.

This does not mean that company owners enjoy complete protection from personal liability. If their actions or omissions caused the company's bankruptcy, they may, where the statutory conditions are met, face subsidiary liability under Article 61(2) of the CUBP. However, this is a separate legal mechanism requiring proof of its own elements of liability.

Directors' Liability: The Date the Debts Arose Is Not the Only Relevant Factor

Another important aspect of the ruling concerns the application of Article 34 of the CUBP over time.

The Code introduced the relevant form of joint and several liability on October 21, 2019. Before that date, Ukrainian legislation did not provide for this particular liability for failing to file for bankruptcy within one month. However, the Supreme Court explained that a threat of insolvency may constitute an ongoing condition, while failure to comply with the obligation to apply to the court may amount to a continuing omission.

If a company became insolvent before October 21, 2019, but its financial condition remained unchanged thereafter, the director in office was required to comply with the new statutory obligation within one month of the Code taking effect. Liability in such circumstances arises from the failure to act after the relevant provision entered into force, not from conduct during the earlier period.

This distinction determined the outcome of the case. The former director had ceased holding office in 2017 and therefore could not be held liable under Article 34 of the CUBP. By contrast, the succeeding director remained in office after October 21, 2019, but failed to ensure that the company applied to the court within the prescribed period.

Importantly, each director's liability must be assessed individually. Where several directors have held office consecutively, the court must establish the period of each person's authority, the existence of the relevant conditions indicating insolvency, and whether the one-month statutory period expired while that person was responsible.

Not every financial difficulty amounts to inevitable bankruptcy. The Supreme Court distinguishes temporary liquidity problems from a persistent financial condition in which a company's assets are insufficient to meet its monetary obligations to creditors.

Moreover, the presumption of fault on the part of a director is rebuttable. A director may demonstrate that the company's financial difficulties were temporary, that there were objective grounds to expect the restoration of solvency, and that specific measures were taken to achieve that result.

Therefore, accounting indicators alone will not determine the director's liability. Documentary evidence of management decisions aimed at overcoming the financial crisis will also be critical.

Who May Bring a Claim, and Where Must the Recovered Funds Go?

The Supreme Court also confirmed that claims seeking to impose joint and several liability may be brought not only by creditors but also by the debtor acting through its liquidator. Furthermore, obtaining a separate prior court order establishing the violation is not mandatory. The existence of the breach, the imposition of liability, and the recovery of funds may all be determined in a single proceeding within the bankruptcy case.

The legal nature of the recovery is equally important. The Supreme Court treats this form of liability as compensation for damage caused to the debtor by the failure to initiate bankruptcy proceedings in a timely manner. Consequently, the recovered funds belong to the debtor and form part of the liquidation estate, while creditors' claims must be satisfied in accordance with the statutory order of priority under the CUBP.

This prevents a creditor who files a claim first from obtaining an advantage over other creditors simply by recovering funds from a director more quickly.

For creditors and insolvency practitioners, this approach clarifies the appropriate legal remedy. For defendants, it defines the limits of their potential liability and the matters that must be proven. The Supreme Court's ruling reinforces a fundamental principle: liability for failing to initiate bankruptcy proceedings on time cannot be based solely on an individual's formal corporate status.

Company owners must distinguish their role in corporate governance from the functions of the executive body. Directors, in turn, must assess the company's actual financial condition in a timely manner, document measures taken to restore solvency, and comply with their statutory obligation to apply to the court when the relevant conditions arise.

It is the actual scope of authority, the period during which it was exercised, and proven failure to act that determine whether a company's debts may result in personal financial liability for its director.