Personal liability for board member for legal costs
Å.B. was the sole board member of two companies: Bofabriken AB (Bofabriken) and Bofabriken Förvaltnings AB (management company).
Both companies had an oral agreement with Mjöbäcks Entreprenad AB (Mjöbäcks) in a project regarding the regeneration and conversion of condominiums.
It later transpired that both Bofabriken and the management company had received revenue from sales in 2010 and 2011 without paying Mjöbäcks according to agreement.
Mjöbäcks first brought an action against Bofabriken and won in the District Court (TR) in March 2014, but shortly after the judgment was handed down, Bofabriken was declared bankrupt.
Mjöbäcks then brought an action against the management company in TR.
The judgment was decided by conciliation in May 2014 and the parties agreed on an expiration clause meaning that the management company would pay Mjöbäcks a significantly larger sum than the original debt if the payment was not paid on time.
The debt matured and the management company thus became liable for payment in accordance with the above-mentioned clause.
However, the management company was also declared bankrupt before the debt was paid.
Mjöbäcks therefore brought an action against Å.B. and requested that he, as a board member, be personally liable for the debts of both companies under the so-called capital shortfall rules of chapter 25 of the Swedish Companies Act (ABL).
If Å.B. had realised that there had been a critical capital shortage (Chapter 25, Section 13 of the ABL) for any of the companies without taking the measures imposed by the capital shortage rules, a period of co-liability had begun (Chapter 25, Section 18 of the ABL), meaning that he became personally liable for all debts incurred by the company in question after the period began.
Such co-liability could have ended, among other things, by presenting at the meeting a balance sheet showing that there was no critical capital shortage, or bankruptcy.
The first question TR tried was whether Å.B. had personal liability for Bofabriken’s debt.
The company’s audit report showed, among other things, that it should have been insolvent since 31 December 2013.
In doing so, the Court concluded that Å.B. should have realised that there was a risk of critical capital shortfall by January 2014 when he signed the annual report for the financial year 2012 and took note of the auditor’s report.
What was not considered sufficiently substantiated, however, was that there was a critical capital shortfall for the company in January 2014 when they were required to draw up a balance sheet.
Thus, TR found that there was no personal liability for Å.B., nor could he be held liable for Bofabriken’s debt.
Furthermore, the Court examined whether Å.B. was responsible for the debt of the management company.
Å.B. signed a control balance sheet for the company in 2012.
Since there was a critical capital shortage at the time, Å.B. was obliged to act in accordance with the capital shortage rules.
The Court did not consider it substantiated that he had complied with the rules and therefore considered that a period of co-responsibility had begun at the time of the signature of the balance sheet, and continued to run until the company’s bankruptcy.
The next question was whether the company incurred the debt during the period of Å.B’s co-liability, and it was therefore necessary to determine the date of the claim’s origin.
TR began by having a claim based on contracts usually incurred at the same time as the agreement.
In the present case, however, the parties had agreed by conciliation.
This was the view of the Court that the claim was surrounded or re-created, thereby resting on a new legal basis.
That assessment was based in part on the oral submission of the agreement between the parties, which made it difficult to ascertain exactly what had been agreed.
Therefore, TR found that the claim in question arose with the settlement judgment, which was during the co-liability period.
Å.B. was therefore personally responsible for the company’s debt
Court of Appeal
To begin with, the Court of Appeal (HovR) found that it agreed with TR’s assessment regarding when Å.G’s co-responsibility period for Bofabriken took place.
On the other hand, there was a different view on whether Å.G. was personally liable for the debt.
The Court found that the evidence in the case clearly indicated that there was a critical capital shortfall when the company’s obligation to draw up the balance sheet arose, but that nothing pointed to the contrary.
Thus, the Court was led to conclude that a critical capital shortfall would be considered to have existed, and that a co-liability period had run from Å.G’s signature of the annual accounts in 2014 until the company’s bankruptcy.
According to HovR, however, the claim arose in the sale of the condominiums, and since it was not during the co-responsibility period, Å.B. could not be held personally liable.
The remaining question was whether Å.G. was liable to pay for the costs of the 2014 judgment.
According to HovR’s assessment, the obligation to pay for the trial would be deemed to have been incurred in line with the costs.
Å.B. was thus personally responsible for the debt incurred during the co-responsibility period, but no more than that.
Since the majority of the costs were not deemed to have been incurred during that period, Å.B. was considered to be liable for a quarter.
Regarding the management company, HovR agreed with TR’s assessment that Å.G. had been personally liable for payment, and during which period the co-liability period had run.
The next question was whether the company’s debt to Mjöbäcks arose during the period of Å.G’s co-responsibility.
Unlike TR, it was not seen as obvious that the settlement judgment meant that the claim had come to rest on a new legal basis, even though the original content of the agreement could not be determined with any further certainty.
Instead, HovR found that the claim would be considered to have arisen with the sale of the condominiums.
The assessment was partly due to the fact that another outcome had entailed too far-reaching liability for Å.B. as a member, and that the judgment itself did not entail any new risk-taking for Mjöbäck as a creditor.
Å.B. could not therefore be held liable for the debt of the management company as a result of the maturity of the company.
The Supreme Court
The Supreme Court’s (HD) review only applies to the date of the emergence of Bofabriken’s debt regarding Mjöbäck’s legal costs, so HovR’s ruling is otherwise up to date.
HD notes at the outset that there is no principle in force in all cases to determine when a claim is to be considered to have arisen (NJA 2009 s.
Furthermore, it is stated that the emergence of existing claims is the purpose of the regulatory framework that is applied of great importance.
In the present case, according to HD, this means that the interest in creditors must be accorded extra importance.
Furthermore, it is argued that the main rule in civil proceedings is that the losing party is responsible for the costs incurred by the winning party, which means that the claim arises when the judgment is decided.
However, the Court does not consider it appropriate with regard to members’ co-responsibility as it leads to decoupling from creditors’ risk exposure during the co-liability period.
An alternative solution discussed by the Court is that the obligation to pay legal costs must be deemed to arise at the same time as the main claim.
Even then, however, the link between members’ liability and creditors’ risk is not considered clear.
Finally, HD concludes that the solution that is best in line with the purpose of the provision is that the obligation should be considered to arise gradually in line with the creditors’ legal costs.
Since the claim then arises at the same time as the cost to be reimbursed, the Court considers that it creates a clear link between members’ liability for payments and the exposure of creditors to risk.
Board members who do not comply with the capital shortfall rules in ABL are therefore at risk of being liable for all legal costs incurred by the creditor during the period of co-liability, but nothing beyond that.
HovR’s decision on what compensation Å.B. must pay Mjöbäck for the legal costs from 2014 is thus upheld.