"Winding up a company with a sale has historically been the most effective way of getting a stuck company back on its feet."
"We will buy your company in difficulty and take care of all the liquidation paperwork."
"You get a clean slate when you sell your troubled company to us!"
Probably every entrepreneur is aware of the possibility of using a 'tankist' as a last resort when business goes sour. There is a choice in the tanker 'market' - the websites of several 'professional' tanker services can be found with a simple Google search. Tankists advertise their services as an easy way to get rid of the company with all its problems (see styling examples above). Just one small and simple transaction on the internet and the company magically disappears as if it never existed. Sound unbelievable? For us too.
In reality, getting rid of a company in a desperate situation is not nearly as simple as handing it over to a tanker for "liquidation". A tankist is not really a magical escape route, but rather brings new and bigger problems for the user of the tankist's services. In the first place, the use of a tankist can cost the former board member tens of thousands of euros. This is because a tankist does not absolve the board member from liability for breach of duty.
Who is a tankist?
A tankist is a person who takes over the problem company completely. This means that the sole shareholding in the company goes to the tanker and that the tanker becomes the sole director of the company. The idea is to break the link between the former director and the company. The former board member is virtually freed from the company's problems because he no longer has any connection with the company. In his place, the tankist director would henceforth be responsible for all the company's activities and liabilities.
Tankist service providers refer to the takeover of sole control of a company as a "Panama package" or "liquidation with sale" or "liquidation of a troubled company". In fact, no liquidation takes place, which is why all the company's problems (e.g. lack of accounting) and/or debts remain. The only externally perceptible change is the change of the name of the director in the commercial register. But this alone is not enough. A claim for damages can still be brought against the former director.
Liability of a member of the Management Board
The day-to-day running of a company is the responsibility of its directors, who must act with due care and diligence. In simple terms, directors must act in the company's best interests, fulfil their legal obligations (e.g. organising the accounts) and refrain from damaging the company. If a board member fails to do this, the company can bring a claim for damages against him. As a general rule, the limitation period for such a claim is 5 years. According to the case law of the Supreme Court, in certain situations, a claim for damages against a member of the management board can be brought for up to 10 years.
The liability of a member of the Management Board is linked to the period of membership. This means that a claim for damages is brought against the person who was a member of the board at the time the damage occurred. For example, take a situation in which a company was damaged by the wrongful withdrawal of a large amount of cash from the company's account. In this case, the claim for damages is directed against the very director who withdrew the cash (or was a director at the time of the withdrawal). The use of a tanker does nothing to avoid the above-mentioned compensation claim. Legally, it makes no difference who is a member of the board at the time the claim is made. The idea is that it is the person who has caused the damage who is liable. Thus, the tankist does not really help to get rid of the problems of a company in difficulty, because the director remains liable even after the transfer to the tankist.
In the practice of Estonian courts, it is common practice to award damages to a member of the management board. It is also worth noting that court proceedings take time and can drag on for years. Therefore, after the sale to the tanker, it may be felt that the tanker has settled the situation. In reality, the court is working on a posteriori problem-solving, which means that legal consequences are delayed. However, it is impossible to predict how long this delay might be. To give an idea of how long it may take to resolve a claim for damages by a board member in court practice, here are a few examples:
- X was the sole member of the board of directors of company Y for six years, from 2007-2013. Y filed a claim for damages against X in early 2015. At the beginning of 2019, the court ordered X to pay Y EUR 35 100, together with default interest and Y's legal costs of EUR 6016.8;
- X was the sole member of the board of directors of company Y until November 2019. In November 2020, the court ordered X and Y jointly and severally to pay to company Z EUR 12 689,21, together with default interest of EUR 3 197.
Claims for damages against board members can reach court in several ways. In scenarios involving the use of a tankist, the most exhausting for a former board member is to be confronted by professional board members seeking damages from the parties. These are entrepreneurs who are in the business of buying their way into companies with the aim of pursuing claims for damages against former directors. In practice, the tankist either sells on his shareholding or the tankist's shareholding is sold by a bailiff in the course of a foreclosure procedure. Either way, the result is the same - the acquirer tries to make a profit on its investment. However, the reality is that tankists are holding on to companies that are bankrupt. Therefore, the only way to make a profit is to claim damages from the former management.
When do you need a lawyer?
The moral of the story is that it is wise to hire a lawyer before a tankist. In reality, hiring a tankist is only postponing the problem, not solving it. Often, a deal with a tankist will result in a snowball effect, making the problem bigger in the end. Inevitably, the lawyer's job only gets harder as the snowball gets bigger. Thus, using a tankist only creates more problems, which is why it is wise not to hire a tankist at all.
If you would like advice on how to resolve this issue, please do not hesitate to contact us by e-mail at office@leno.ee or via the contact form on the website. We will reply to your enquiry as soon as possible.