Supreme Court sheds light on rules governing directors' and officers' liability
Only if under the same circumstances no right-thinking managing director would have acted like the managing director who was held responsible has acted, will manifestly improper management occur, states the Supreme Court.
19 april 2017
Directors' and officers' liability
Under the Collection of State Taxes Act, managing directors are jointly and severally liable for (among other things) a legal entity’s non-paid payroll tax and VAT in certain situations. If a legal entity’s managing director has legal personality, too, this liability likewise applies to the underlying directors. Managing directors can prevent liability by reporting an inability to pay on time, provided no manifestly improper management is involved. The Supreme Court shed some light on the latter criterion recently.
Manifestly improper management
The interested party had been an indirect shareholder and he had also been the indirect managing director of X BV since June 4, 2007. Following the termination of a transport contract this BV ran into financial problems in 2008 and it was ultimately ordered into liquidation on December 9, 2008. Although the VAT and payroll tax due over the months of September through November 2008 had been declared, they had not been paid. The inability to pay had been reported on time. The Tax Administration nevertheless proceeded to claim for liability, as the interested party had apparently deliberately opted to only fully repay the bank credit. As a result, insufficient liquidities had remained to pay the tax liability.
The Den Bosch Court of Appeal has indeed considered this to be a case of manifestly improper management. Regardless of the collateral provided to the bank, the interested party should not have so easily given in to the pressure the bank had exercised. Invoking the principle of equality was rejected as well (the interested party is the only managing director to have been held responsible). The Court of Appeal does limit the liability to the months of September and October 2008, because following the bankruptcy the obligation to file returns and make payments over the month of November 2008 had been transferred to the trustee in bankruptcy. Both parties have lodged an appeal in cassation.
Only part of the Court of Appeal decision was upheld upon appeal. The Supreme Court first and foremost states that only if under the same circumstances no right-thinking managing director would have acted like the managing director who was held responsible has acted, does manifestly improper management occur. One of the situations in which this arises is when a managing director was, or should reasonably have been, aware that his actions would lead to the tax debts of the legal entity remaining unpaid and he can be attributed sufficiently serious personal blame in this respect. The structural non-payment of tax debts may be an indication that this criterion has been met, although it is not necessary for this conclusion. The above does come with the caveat that the reproach of manifestly improper management can only be considered if the managing director had the power to not perform the contested acts of management. With the interested party claiming before the Court of Appeal that the bank itself had brought about the collection of its receivables by exercising its right of pledge, the Court of Appeal decision as such has been insufficiently explained. Having reported its inability to pay, the interested party need not inform the Tax Administration about the bank’s actions of its own volition either. The Supreme Court also rules that the several and joint liability does not by definition exclude the option to invoke the principle of equality.
The State Secretary, too, is partly successful upon appeal. The trustee in bankruptcy having the competence to file returns and pay the payroll tax and VAT due over the month of November 2008 once the liquidation had been ordered, does not exonerate the interested party from these debts continuing to be unpaid. The Supreme Court brushes aside the liability for the late payment interest though. This would first require the tax collector to take a decision in which the late payment interest accrued is determined upon a decision that is open to objection. The Supreme Court refers the case to the Arnhem-Leeuwarden Court of Appeal to further be dealt with and ruled upon.
Source: Supreme Court March 31, 2017, 15/02939, ECLI:NL:HR:2017:530