The Company Went Bankrupt: When Can Its Debts Be Recovered from the Director?

A company’s bankruptcy does not in itself mean that its debts automatically pass to its director, founder, or beneficial owner. However, the limited liability afforded by a legal entity is not an absolute shield: if insolvency resulted from specific decisions or omissions by individuals who managed the business or effectively determined its actions, a court may hold them liable for the company’s outstanding obligations. Recent Supreme Court practice demonstrates that courts are increasingly looking beyond a person’s formal status and examining their actual role in the company’s activities. Therefore, not only a director or founder, but also a person exercising de facto control over the business may be exposed to liability.

When Corporate Debts Become a Personal Problem

The basic rule of corporate law remains unchanged: a legal entity is independently liable for its obligations. If a company fails to pay a supplier, bank, or another creditor, this fact alone does not entitle the creditor to demand payment directly from the company’s director or shareholder. The situation changes in bankruptcy proceedings. Part 2 of Article 61 of the Code of Ukraine on Bankruptcy Procedures allows subsidiary liability to be imposed on founders, shareholders, directors, and other persons if the debtor’s bankruptcy resulted from their culpable acts or omissions.

In practical terms, this means that the court must answer not simply who was formally registered as the company’s director or owner, but a much more difficult question: did the actions of a particular person cause the company to become insolvent and lose its ability to satisfy creditors’ claims?

This approach is clearly illustrated by the judgment of the Commercial Cassation Court within the Supreme Court of 26 February 2026 in case No. 44/440-b. The dispute concerned the bankruptcy of City’Com LLC and a claim for subsidiary liability exceeding UAH 525 million. The Supreme Court emphasized that even a person who was not formally a director or founder may potentially be subject to such liability if that person was able to determine the debtor’s actions, including by influencing the management of its financial resources. Accordingly, the absence of a formal management position or a shareholding in the company does not, by itself, guarantee protection. If actual control over financial or managerial decisions is established, the issue of liability may also arise in relation to such a person.

What Exactly Must Be Proven?

At the same time, subsidiary liability should not become a mechanism for punishing a director simply because the company went bankrupt. A causal link remains central to the Supreme Court’s approach. Specific culpable acts or omissions must be established, and it must be proven that they resulted in negative consequences — the company’s insolvency and the absence of sufficient assets to satisfy creditors. The burden of proving these circumstances lies primarily with the liquidator.

The same case No. 44/440-b is illustrative. With respect to one respondent, the courts established a causal link between that person’s conduct as a director and the company’s bankruptcy, while the claim against another person was dismissed due to the lack of evidence of fault. The Supreme Court, however, stressed that courts must examine the actual influence of each potential respondent, their powers, and their involvement in specific financial decisions rather than relying solely on their formal status. As a result, the relevant part of the dispute was remitted for reconsideration. This is also important from the director’s perspective. Even where a company has accumulated substantial debts and lacks sufficient assets to repay them, it is still necessary to establish what exactly a particular individual did or failed to do and how this affected the company’s financial position.

Which Actions Create the Greatest Risk?

In practice, liquidators and courts pay particular attention to transactions that reduce a company’s assets without an adequate economic benefit, transfers of property to related parties, the assumption of obligations clearly disproportionate to the company’s financial capacity, or the effective cessation of business activities while leaving creditors without any realistic source of repayment. However, even a transaction that appears suspicious at first glance must be assessed in its particular circumstances. Business always involves risk.

For this reason, it is particularly important for directors to ensure that significant decisions have a clear economic rationale at the time they are made. Minutes, financial calculations, risk assessments, correspondence with counterparties, shareholder resolutions, and other documents may, several years later, become evidence that the director acted in good faith and in the company’s interests, even if the business ultimately failed to achieve the expected result.

Liability May Extend Beyond the Director

One of the most important trends in case law is that the range of persons potentially liable is not limited to those formally listed in the Unified State Register.

In case No. 44/440-b, the Supreme Court expressly pointed to the need to examine the role of a person whom the debtor’s shareholders had authorized to approve the management of financial resources. The Court also noted that being a creditor of the same debtor does not exempt such a person from potential subsidiary liability and does not, in itself, prove the absence of fault.

This is particularly relevant for groups of companies in which the formal director of a particular entity may have limited independence, while key decisions concerning funds, assets, and contracts are actually made by the beneficial owner or other persons. Therefore, a structure in which the actual owner holds no formal position and expects all potential liability to remain with a nominee director does not provide guaranteed protection.

How Much Can Be Recovered?

Subsidiary liability may be calculated not by reference to the value of a single unsuccessful transaction, but essentially by the entire amount of creditors’ claims that cannot be satisfied from the bankrupt company’s assets.

This is why such disputes may involve hundreds of millions of hryvnias. At the same time, the Supreme Court has established an important safeguard. In its judgment of 19 June 2024 in case No. 906/1155/20 (906/1113/21), the judicial chamber of the Commercial Cassation Court held that the right to bring a claim for subsidiary liability arises no earlier than after the completion of the sale of assets included in the liquidation estate and the relevant settlements with creditors. Only at that stage can the actual asset shortfall — the amount to be compensated — be determined.

Otherwise, a situation could arise in which attempts are made to recover debts from a director or owner before it is even clear what proportion of those debts can be repaid by the company itself.