Liability of members of the management board of the commercial company for the company’s obligations
Recently, there have been numerous actions taken by the Polish social insurance institution – the Social Insurance Institution – against foreigners acting as members of the management boards of commercial law companies, which consist in seeking receivables from them for overdue social security contributions. This is the case of the so-called subsidiary liability in the event of ineffective enforcement of these receivables from the company’s assets. The basic principles of subsidiary liability of members of the management boards of commercial companies included in Art. 299 of the Commercial Companies Code (KSH) and Art. 116 of the Tax Ordinance.
Commercial Companies Code
Pursuant to art. 299 of the Commercial Companies Code, members of the management board of a limited liability company are jointly and severally liable for its obligations if enforcement against the company turns out to be ineffective. This means that the management board members are liable in such a situation without limitation with their own assets, and the creditor has the right to demand performance from the debtor of his choice.
The liability of management board members does exist towards the company’s creditors which may be either a third party or another shareholder of the limited liability company. However, the scope of application of this standard does not cover intra-company debts. This only concerns obligations to which the limited liability company became a party in the course of its operation. The source of this obligation does not matter – it may be an obligation arising from a statute, contract, tort, unjust enrichment or any other source.
A member of the management board may be released from the above-mentioned liability if he proves that:
- in due time (i.e. no later than thirty days from the date on which the grounds for declaring bankruptcy arose), an application for declaring bankruptcy was filed or at the same time a decision was issued to open restructuring proceedings or to approve the arrangement in the proceedings for the approval of the arrangement or
- that the failure to file the bankruptcy petition was not his fault, or that despite the failure to file the bankruptcy petition and the failure to issue a decision to open restructuring proceedings or the failure to approve the arrangement in the arrangement approval proceedings, the creditor did not suffer any damage.
Importantly, art. 299 of the Commercial Companies Code, has no direct equivalent in the regulation regarding joint-stock companies. This, however, does not mean that creditors of a joint-stock company cannot pursue their claims directly from the management board members. In this case, the basis for liability is derived from the Bankruptcy Law or the Tax Ordinance.
Tax Ordinance
Article 116 of the Tax Ordinance Act concerns the subsidiary liability of management board members for tax and social security arrears.
The members of its management board are jointly and severally liable for the tax arrears of a limited liability company and a joint-stock company with all their assets if enforcement against the company’s assets turned out to be wholly or partially ineffective.
A member of the management board of the mentioned companies may be released from liability if:
- proves that the application for declaration of bankruptcy was submitted in due time or that restructuring proceedings were opened at that time, or the failure to submit the application for declaration of bankruptcy was due to no fault of his own;
- indicate the company’s property from which enforcement will enable a significant part of the company’s tax arrears to be satisfied.
In turn, for tax liabilities arising on the basis of separate regulations after the liquidation of the company, for tax arrears in respect of liabilities whose payment deadline expired after the liquidation of the company, and arrears for the refund of overpayments or tax refunds and for the refund of remuneration of payers or collectors arising after the liquidation of the company, persons acting as members of the management board at the time of liquidation of the company are responsible. Thus – despite the liquidation of the company i.e. the loss of its legal existence – in some cases it is possible to establish the liability of former management board members.
Bankruptcy law
Moreover, in accordance with the Bankruptcy Law, if the debtor is a legal person (this concept also includes limited liability companies and joint-stock companies), members of the company’s management board are liable for any damage they have caused to creditors as a result of failing to submit an application for bankruptcy within 30 days from the date in which the grounds for declaring bankruptcy occurred.
Alternatively, these persons may free themselves from liability, in particular if they prove that the above-mentioned restructuring proceedings were opened on time or the arrangement was approved in the arrangement approval proceedings.
If you have any questions, please contact us: adam.barbasiewicz@cottyn.pl / marc.cottyn@cottyn.eu / yente.caluwaerts@cottyn.eu.
