Directors’ and officers’ liability for tax and pension debts

If an enterprise is in a situation of inability to pay, a director must report this to the pension fund and the Tax and Customs Administration. Procurator general Assink concluded in a case during which the Court held a director liable for pension debts. The Court of Appeal saw this otherwise on appeal and the procurator general agrees with this. Procedural law lawyer Lennard Noordzij explains.

Directors’ and officers’ liability for pension debts

If an enterprise is unable to pay pension contributions to a pension fund, a director must notify the pension fund in writing within 14 days after a pension payment is due and, if requested by the pension fund, must provide further information and submit documents. The director must also provide insight into the circumstances that have resulted in the fact that the pension contributions cannot be paid.

If the director has made the report in a timely manner, a director will only be jointly and severally liable if the non-payment of the pension debt is the result of manifestly improper management in the three years prior to the time of the report. In that case the obligation to furnish facts and burden of proof are vested in the pension fund. This is a good position of evidence for a director. However, if the payment problems are not reported in a timely manner by the director, the presumption will be that the non-payment is his fault. In that case the director must demonstrate that the non-payment of the pension debts of the private limited liability company cannot be attributed to him. This is a difficult position of evidence for a director.

Directors’ and officers’ liability for tax debts

The directors’ liability arrangement for pension contributions bears great resemblance to directors’ liability in the event of unpaid tax debts. In that case a duty to report is also vested in the director to report the inability to pay within 14 days after the tax should have been paid. If the director does this, he will have the good position of evidence referred to. If he omits to do this, he will be in a bad position, because the presumption will that he caused the non-payment.

Facts of the case

In this case the private limited liability company A was compulsory affiliated with a pension fund. In March 2008 the private limited liability company A got into problems with the payment of the pension contributions. In May 2008 the private limited liability company A concluded, by means of intervention from its former director, a verbal payment arrangement with the pension fund for several pension contributions. Only at the end of 2009 the new director of the private limited liability company A reported the payment problems in writing to the pension fund. The pension fund held the new director in question personally liable for more than € 600,000 of contribution arrears due to the failure to comply with the duty to report. The Court agreed with the pension fund: it held the director jointly and severally liable.

Ruling of the Court of Appeal and the procurator general

The Court of Appeal viewed this otherwise for several reasons. Inter alia because the pension fund was most certainly informed by the private limited liability company A of the payment problems in a timely manner. This was because the private limited liability company A concluded a payment arrangement at the end of May 2008. The procurator general of the Supreme Court agreed with this. The procurator general concluded that if a pension fund or the Tax and Customs Administration is aware of an inability to pay in a manner other than a report from the director, extra notification in writing will not be necessary. The ultimate issue is that the pension fund was able to form a reasonable opinion regarding the causes of the enterprise’s inability to pay. That was the case in this matter.

Conclusion

The case is now before the Supreme Court. This ruling makes it clear that directors of enterprises that encounter financial problems, must report this as soon as possible to the pension fund as well as to the Tax and Customs Administration. If a director fails to do this, the risk of personal liability is high.