The liquidation or bankruptcy of a company is always a complex and responsible process that affects not only the business itself, but also its founders. Even if the company faces temporary financial difficulties or decides to voluntarily cease its activities, the actions of the founders during this period directly affect the outcome of the procedure and can lead to personal consequences.

The founders of a company bear special responsibility for the correct execution of documents, timely notification of creditors, and compliance with established procedures. Quite often, mistakes or negligence at this stage become the cause of personal financial losses, claims from creditors, or the need to compensate for damage at the expense of personal property.

It is important to understand that the founders’ responsibility is not limited to formal obligations to the company. It covers issues related to settlement with creditors, proper financial reporting, preservation of assets and prevention of actions that may be considered illegal in the cessation of activities. Underestimating these risks can lead to conflicts, litigation, and difficulties in future business activities.

In this article, we will take a detailed look at what exactly founders are responsible for in liquidation and bankruptcy procedures, what typical mistakes occur in practice, and how to minimize personal risks while maintaining control over the process and the company’s interests.

General Provisions on the Liability of Founders in the Process of Liquidation and Bankruptcy

The founders of a company play a key role at all stages of liquidation and bankruptcy. Their actions and decisions directly affect the outcome of the procedure, financial results, and the ability to protect the rights of creditors and other stakeholders. Understanding the scope of liability and areas of influence helps minimize the risks of personal financial losses and avoid conflicts.

What the Liability of Founders Consists Of

The founders’ responsibilities cover both financial and organizational aspects. They are obliged to ensure proper documentation, control over settlements with creditors and counterparties, preservation of the company’s property and timely notification of all interested parties.

How Their Actions Affect the Outcome of the Procedure

The decisions of the founders can significantly speed up or, conversely, delay the liquidation process. Timely measures to inventory assets, settle debts and notify creditors help to avoid unnecessary costs and disputes. Conversely, negligence, violation of the sequence of actions or ignoring the interests of creditors can lead to additional inspections, claims and even personal liability for the company’s losses.

Difference Between the Liability of Founders and the Liability of Employees and Managers

It is important to understand that the founders’ responsibilities differ from those of managers and employees. Managers are responsible for operational management and daily business activities, while employees are responsible for performing specific tasks. The founders, on the other hand, are responsible for organizing the entire process of liquidation or bankruptcy, making strategic decisions and ensuring respect for the interests of all parties. Their actions determine not only the formal outcome of the procedure, but also the legal and financial consequences for the company and for them personally.

Main Stages of Liquidation and Bankruptcy and the Participation of Founders

The process of liquidation or bankruptcy of a company consists of several key stages, at each of which the actions of the founders directly affect the outcome and the level of risks. Understanding the sequence of these steps enables effective management of the process and minimizes potential negative consequences for both the founders and the company.

Decision to Cease the Company’s Activities

The first stage is a decision to liquidate the company or declare it insolvent. The founders should assess the financial condition of the company, the possibility of debt repayment and the prospects for continuing operations. The decision is made with regard to the interests of all participants and creditors. At this stage, it is important to clearly document the reasons and grounds for the termination of activities in order to avoid claims and disputes in the future.

Preparation and Submission of Documents

After the decision is made, the founders prepare the necessary documentation for the official termination of activities. This includes compiling a list of creditors, conducting an inventory of assets, preparing financial statements, and other accompanying documents. At this stage, errors or delays in document preparation may become grounds for claims from creditors or supervisory authorities and lead to subsidiary liability.

Interaction with Creditors and Counterparties

Founders are obliged to organize interaction with the company’s creditors and counterparties. This includes notifying them of the termination of activities, agreeing on deadlines for the fulfillment of obligations, transferring assets, and resolving disputed issues. Timely and transparent interaction reduces the risk of conflicts and litigation, ensures the possibility of controlled distribution of assets, and helps protect the personal interests of the founders.

At each stage, it is important to act thoughtfully and consistently. Errors or negligence may lead to personal liability, worsen the company’s financial situation, and create additional legal difficulties. In the next section of the article, we will examine in detail what founders are specifically responsible for when settling with creditors and distributing property.

Financial Obligations and Settlements with Creditors

One of the key areas of responsibility of the founders in liquidation or bankruptcy is the company’s financial calculations. Mistakes or premature actions at this stage can lead to serious consequences, including creditor claims and the possibility of additional liability.

Fulfillment of the Company’s Debt Obligations

The founders are obliged to ensure that the company fulfills its debt obligations to creditors, suppliers and other counterparties. This includes timely repayment of debts, proper distribution of funds and accounting for all obligations of the company. Ignoring or delaying payments can not only lead to creditors’ claims, but also complicate the liquidation process, increasing the risks of personal liability of the founders.

Consequences of Late Payments and Outstanding Debts

Untimely settlements with creditors can lead not only to financial sanctions for the company, but also to the personal liability of the founders. If unfair behavior, concealment of assets or delays in settlements are detected, creditors may demand compensation for damages. Even if the debt arose without the fault of the founders, improper organization of settlements may lead to claims that complicate the completion of the liquidation procedure.

The Role of Founders in the Distribution of Company Property

The founders are responsible for the proper distribution of the company’s property between creditors and participants. This includes accounting for all debt obligations, asset valuation and control over the transfer of property. Violations at this stage, such as transferring assets without proper priority or failing to consider creditors’ interests, can result in financial losses for the company and personal liability for the founders.

Proper organization of settlements with creditors and transparent distribution of property are key factors for the successful completion of liquidation or bankruptcy procedures, minimization of risks, and protection of the founders’ interests.

Subsidiary Liability of Founders

Subsidiary liability is one of the most important aspects of founders’ personal liability during a company’s liquidation or bankruptcy. It is directly related to situations where the company is unable to fully meet its financial obligations and creditors turn to the founders to recover losses.

What Subsidiary Liability Is and When It Arises

Subsidiary liability means that founders may be required to repay the company’s debts from their own property if the company is unable to settle with creditors. It arises when violations of business management, non-compliance with procedures for settlements with creditors, or abuses during liquidation and bankruptcy are identified.

Reasons for Bringing Founders to Subsidiary Liability

In practice, subsidiary liability may arise due to:

• bad-faith management of the company’s financial resources;
• concealment of property or assets belonging to the company;
• untimely or incomplete fulfillment of debt obligations;
• violations in settlements with creditors that result in damage to the company and third parties.

Even if violations were not intentional, a lack of proper control and transparency in the founders’ actions may become grounds for holding them liable.

Practical Consequences for Personal Finances and Property

Bringing to subsidiary liability means that creditors have the right to demand repayment of the company’s debts at the expense of the founders’ personal funds. This may include the confiscation of cash, real estate, vehicles and other assets. In practice, such situations create serious financial risks and can threaten the personal property of the founders, especially if the company’s debts are significant.

Difference from General Liability of Founders

It is important to understand that additional responsibilities differ from the founders’ general responsibilities. General responsibility is related to obligations related to the management of the company, proper documentation and compliance with procedures. On the other hand, subsidiary liability applies in cases of a company’s insolvency and serves to protect creditors’ interests when corporate assets are insufficient to cover debts.

Understanding the specifics of subsidiary liability allows founders to take timely measures to reduce personal risks and organize the liquidation or bankruptcy process in the safest possible way.

Liability for Actions During the Termination of Activities

Liquidation and bankruptcy procedures require close attention and strict compliance with the rules governing interaction with creditors, counterparties and bodies controlling the process. The founders are personally responsible for their actions, and irresponsible behavior can have serious consequences.

Bad-Faith Actions Leading to Personal Liability

Founders may be held liable for actions that endanger the interests of creditors or the company as a whole. Such actions include:

• intentional concealment of assets;
• fictitious reduction of the company’s property;
• use of corporate funds for personal purposes during the termination period;
• evasion of notifying creditors and counterparties about liquidation or insolvency.

Even unintentional mistakes, if they result in damage to the company or creditors, may become grounds for claims.

Restrictions on Disposal of Property

At the stage of termination of activities, the founders must comply with the restrictions on the disposal of the company’s property. The transfer of assets to third parties, sale or other transactions should be carried out only within the framework of the procedure and with due regard to the interests of creditors. Violation of these rules may result in the founders being brought into subsidiary liability and obliged to compensate for the damage at the expense of their personal property.

Consequences of Concealing Information or Distorting Reports

Concealment of data on the financial condition of the company, distortion of accounting records or incomplete disclosure of information to creditors are extremely risky actions. They not only undermine the credibility of the liquidation process but also serve as the basis for claims by creditors and state bodies. In such cases, founders may face claims for compensation and loss of ability to protect their personal interests.

Transparency, accurate documentation, and responsible management of property at all stages of termination of activities are key to minimizing the risk of personal liability for founders.

Typical Mistakes of Founders and Their Consequences

Liquidation and bankruptcy procedures require caution and a well-structured approach. In practice, many founders make mistakes that significantly increase their personal risks. Understanding typical problems helps to avoid unpleasant consequences and maintain control over the process.

Formal Approach Without Risk Assessment

One of the most common mistakes is the attitude to liquidation or bankruptcy as a purely formal procedure without assessing the financial, legal and organizational consequences of one’s actions. Ignoring risks increases the likelihood of prosecution.

Ignoring the Interests of Creditors

Founders sometimes underestimate the importance of creditors and do not comply with notification procedures, settlement rules and proper interaction. This creates grounds for disputes, claims and litigation. Violation of creditors’ interests can lead to both financial liability and the need to compensate for damages at the expense of personal funds.

Untimely Notification of Participants and Partners

Another common mistake is to inform other company members or business partners about liquidation or bankruptcy late. This leads to conflicts, misunderstandings and even blocking of transactions related to the transfer of assets and settlements with creditors. Lack of transparency in communication reduces trust and makes it difficult to complete the procedure.

Underestimation of the Consequences of Personal Actions

Founders sometimes fail to realize that their personal decisions directly affect the company’s financial condition and potential claims from creditors. For example, untimely transfer of assets, improper documentation, or attempts to “circumvent” procedural rules may become grounds for subsidiary liability and other forms of personal responsibility.

A comprehensive understanding of these mistakes and their consequences enables founders to build a safe strategy of action, minimize risks, and complete liquidation and bankruptcy procedures as safely as possible for themselves and the company.

How to Minimize Risks for Founders

Liquidation and bankruptcy procedures always entail risks for founders. However, many of these risks can be reduced or completely avoided with proper training and organization. Let’s look at key practical measures that help minimize personal responsibility.

Proper Preparation of Documents and Reports

A key aspect of the safe completion of the procedure is the accurate and timely preparation of all documentation. The founders must ensure the accuracy of financial statements, conduct an inventory of assets and properly execute all documents related to settlements and notifications. Properly prepared documents reduce the risk of creditors’ claims and make the process more transparent for supervisory authorities.

Transparency of Settlements with Creditors

All financial transactions with creditors must be transparent and documented. Timely notification of outstanding debts, distribution of assets in accordance with the order of priority of claims and careful handling of payments help to avoid conflicts and claims. The transparency of settlements also reduces the likelihood that the founders will be held subsidiary responsibility.

Consulting Professionals at Every Stage

Working with experienced consultants, lawyers and financial specialists helps avoid mistakes and correctly assess all risks. Professional support is especially important when preparing documents, interacting with creditors, and valuing assets. Consultants help structure the process in the safest possible way and protect the personal interests of founders.

Advance Planning to Protect Personal Interests

Another important way to reduce risks is to plan all actions in advance. This includes forecasting potential problems, allocating responsibilities among participants, assessing financial obligations and developing strategies for the safe liquidation or completion of bankruptcy. Thoughtful planning allows founders to act confidently, minimizing the likelihood of personal financial losses and conflicts with creditors.

Compliance with these rules makes the liquidation and bankruptcy process controlled and safe, allowing the founders to protect their interests and complete the procedure with minimal impact on personal property.

Conclusion

Liquidation and bankruptcy procedures always entail risks for founders. Their actions directly affect the outcome of the process, financial results and the possibility of avoiding claims from creditors. Unfair behavior, untimely settlements or errors in documentation can lead to additional liability and personal financial losses.

Our team provides professional advice on issues related to the responsibility of founders in liquidation and bankruptcy procedures. We support all stages of the process, from preparation of documents and interaction with creditors to asset allocation and risk minimization. Thanks to an integrated approach, our clients can safely navigate the process, maintain control and protect their personal interests.

Contact us

If you have any questions related to liquidation and bankruptcy procedures in Belarus, we will be happy to help! Our long-term experience will help you choose a lawyer to represent your interests.

• +37529142-27-19 (WhatsApp, Viber, Telegram);
• info@ambylegal.by.