Supreme Court judgment on liability under Chapter 25 Section 18(1) of the Companies Act – Case T 8723-23 (“CashCom”)

Legal Framework

Chapter 25 of the Companies Act sets out a detailed regime applicable when a company’s own equity falls below half of the registered share capital. Sections 13–17 establish strict obligations on the board, including the preparation of a control balance sheet when there is reason to believe that the company’s equity has fallen below this threshold, and the implementation of measures such as liquidation proposals if the deficiency persists.

Failure to comply with these duties triggers personal liability for the members of the board under Section 18(1). This provision imposes joint and several liability for obligations incurred by the company during the period of non-compliance. Importantly, liability is strict and does not depend on fault or intent, reflecting the legislature’s intention to protect creditors from the risks associated with capital-deficient companies.

Section 18(2), by contrast, addresses the liability of other persons who act on behalf of the company during the default period. Such company representatives are jointly and severally liable with the board members, but only if, they knew of the board’s failure to comply with the statutory obligations and the obligations arose from their own actions.

The personal liability under both Sections 18(1) and 18(2) may be avoided if the individual proves that they were not negligent.

Facts of the Case

In CashCom, the Supreme Court considered whether a person not formally appointed as a board member but exercising significant operational control could be held liable under Section 18(1).

The individual in question was a deputy board member and an authorised signatory (Sw. firmatecknare) who had not been formally called to serve as a board member during the relevant period. Further, the individual was a shareholder and board member of the parent company. Despite the lack of formal appointment, he actively managed key financial and operational functions, including liquidity management, thereby influencing decisions typically reserved for the board.

After incurring a capital deficiency, the company failed to prepare the required control balance sheet and took no further action as required under Sections 13–17 of Chapter 25 of the Companies Act. This constituted a breach of the capital maintenance rules.

The Supreme Court concluded that despite the absence of formal appointment, the individual had personal liability under Section 18(1) of the Companies Act.

Supreme Court’s Interpretation

The Supreme Court emphasised a functional approach to liability under Section 18(1). It held that the term “board member” is not confined to formally registered directors but extends to individuals who perform equivalent governance functions. The decisive factor is whether the person exercised control and decision-making power consistent with the board’s responsibilities.

This interpretation reflects the provision’s protective objective: ensuring that persons who bear actual responsibility for governance during capital deficiency cannot avoid liability merely by lacking formal appointment.

The Supreme Court reaffirmed that liability under Section 18(1) is strict and joint for all obligations incurred during the period of non-compliance. There is no requirement to prove knowledge of the breach or a causal link to specific obligations.

Distinction Between Sections 18(1) and 18(2)

The Supreme Court further clarified the distinction between Sections 18(1) and 18(2). While Section 18(1) applies to both formally appointed board members and de facto directors performing equivalent roles, Section 18(2) applies to other persons acting on behalf of the company during the default period, but only if:

• they had actual knowledge of the board’s failure to comply with statutory obligations, and
• the obligation resulted from their own actions.

Unlike Section 18(1), Section 18(2) does not impose liability for all obligations during the non-compliance period, but only those causally attributable to the individual’s conduct.

Legal and Practical Implications

The Supreme Court’s ruling clarifies that the concept of “board member” for purposes of Section 18(1) is to be understood substantively rather than formally. Persons exercising board-like authority are subject to strict personal liability for company obligations during periods of capital deficiency.

This broad interpretation strengthens creditor protection and reinforces the importance of formal governance structures in distressed financial situations.

At the same time, the Supreme Court reaffirmed the narrower, fault-based scope of Section 18(2), limiting liability to persons with knowledge and causal involvement.

For legal practitioners and corporate actors, the decision underscores the importance of clearly defined roles and accountability within the company. Assuming board-level responsibilities—without formal appointment—now carries a serious risk of personal liability.

Conclusion

In CashCom (T 8723-23), the Supreme Court confirmed that strict personal liability under Section 18(1) extends to de facto directors who exercise board-level functions, regardless of formal appointment. The Supreme Court also clarified that liability under Section 18(2) is limited to persons with knowledge of the board’s failure and to obligations causally linked to their conduct.

This landmark interpretation enhances creditor protection by targeting those exercising substantive control and confirms the distinct and more conditional nature of Section 18(2). It reaffirms the Swedish capital maintenance regime as a robust tool to ensure sound corporate governance and creditor safeguards during financial distress.