A resolution on dismissal from the management board does not always release the management board member from liability for tax liabilities – important ruling

Publication date: March 15, 2024

In the face of changing regulations and court practices, the issue of liability of management board members for the tax liabilities of limited liability companies, even after their formal dismissal, constitutes a significant challenge for legal practice. The latest case law, including the final judgment of the Polish Supreme Administrative Court, sheds new light on the interpretation of the provisions regarding the scope and conditions of this liability. Analysis of these judgments, in the context of Art. 116 paragraph 1 and 2 of the Polish Tax Ordinance and the Commercial Companies Code, reveals that dismissal from the management board is not in itself a sufficient basis for exemption from liability if actual actions prove the continuation of performing the function. In the context of company management, it is crucial to monitor changes in case law and legal regulations that may affect the interpretation of the duties and responsibilities of management board members. New court decisions may bring changes in the understanding of company management regulations, emphasizing the importance of appropriate documentation and procedures. For managers and legal advisors, continuous monitoring and adaptation to current legal requirements becomes an essential element of effective risk management and avoiding potential legal consequences.

Extending the liability of management board members for tax arrears

In the judgment of October 20, 2022 (reference number III FSK 1030/21), the Polish Supreme Administrative Court dealt with a case regarding the joint and several liability of a member of the company’s management board for tax arrears. The ruling specifies that this liability applies to persons acting as members of the management board, regardless of the scope of duties entrusted or the activities actually undertaken. This means that liability rests with a member of the management board for the period in which he had formal powers, regardless of whether he actively dealt with the company’s affairs.

The court upheld the judgment of the Polish Provincial Administrative Court in Warsaw, dismissing the cassation appeal regarding liability for tax arrears. It was found that the complainant, acting as vice-president of the management board during the period for which the arrears were accrued, was jointly and severally liable for the company’s tax liabilities.

The conclusion of the judgment emphasizes that under Polish law, the premises for liability is to formally serve as a member of the management board in the period during which tax arrears occurred, which has a significant impact on the scope of liability of management board members. This changes the interpretation of the provisions on liability for tax liabilities, emphasizing that it is not necessary to be actively involved in the management of the company to be liable. This ruling confirms and strengthens the principle that the liability of a management board member is objective, related to the function performed, and not to the actual scope of activities.

In the light of the latest case law, a key aspect is to assess whether, despite being formally dismissed from office, a given management board member still actually performed his duties, which may constitute the basis for holding him liable for the company’s tax liabilities. The liability of management board members for the company’s tax obligations is based on Art. 116 § 1 and 2 of the Polish Tax Ordinance, which provides for joint and several liability for tax arrears. In the analysis of a specific case, it is also important to refer to the provisions of the Commercial Companies Code, which regulate the issues of appointing and dismissing management board members and their obligations.

Court Argumentation

Polish Administrative courts emphasize that the key to determining liability is not a formal dismissal, but the actual cessation of performing management functions. An analysis of the activities undertaken by the dismissed member of the management board, including making economic decisions or representing the company, may prove that he or she continues his actual role in managing the company, which justifies being held tax liable. In legal practice, this judgment forces legal advisors to pay attention to the need to precisely document the moment when management board members cease to perform their duties, and to consciously limit activities that could suggest their continuation. It is also emphasized that liability may be limited by actions such as filing a bankruptcy petition in a timely manner, which may constitute a gateway to avoiding liability. It is worth noting that even persons who actually managed the company but were not disclosed in the National Court Register cannot effectively avoid financial liability. This interpretation results from the analysis of case law, including judgments of the Polish Supreme Court, which confirmed that the actual performance of the function, and not the formal entry in the register, is decisive for fulfilling the role of a management board member and the related responsibilities.

Implications

Case law has a significant impact on the practice of company management, forcing management board members to be fully aware of the consequences of their actions, also after formal dismissal. From the perspective of legal advisors, it is important in the advisory process to place emphasis on accurate documentation of the moment of the cessation to perform functions on the management board and limiting activities that may suggest continuing to perform these functions. It is also worth mentioning that changes in case law also affect risk management in companies, emphasizing the need for a thorough analysis of the financial situation and appropriate response in the event of potential arrears. This results in greater caution in making economic decisions and emphasizes the importance of the management board’s responsibility for the company’s finances.

Company management in the light of the Polish Commercial Companies Code: Appointment, duties and dismissal of management board members

The Polish Commercial Companies Code regulates in detail the issues relating to the appointment and dismissal of members of the management board of limited liability companies and joint-stock companies, as well as their obligations. The regulations of the Polish Commercial Companies Code regarding the appointment, dismissal and duties of management board members constitute a comprehensive mechanism aimed at ensuring effective and transparent management of companies. It is crucial that both shareholders and management board members are aware of their rights and obligations under the law and the company’s articles of association, which contributes to the proper functioning of the company on the market.

Appointment and dismissal of management board members

The management board of a limited liability company is appointed and dismissed by the Shareholders’ Meeting, unless the company’s articles of association provide otherwise. Persons from among the shareholders or from outside their circle may be appointed to the management board. A shareholders’ resolution or a company agreement may specify the requirements that candidates for the position of management board member should meet.

The principle of appointing members of the management board of a limited liability company by the Shareholders’ Meeting is fundamental, although the company’s articles of association may introduce alternative mechanisms, such as appointment by shareholders, third parties or bodies outside the company. The appointment of management board members creates an organizational relationship between the management board members and the company, which is independent of other possible legal relationships, such as an employment contract or mandate contract.

Duties of management board members

Resolutions of the management board are usually adopted by a majority of votes, unless the company’s articles of association provide otherwise. In case of equality of votes, the vote of the president of the management board may be decisive. The Management Board may also adopt resolutions in writing or using remote means of communication, if the statutory provisions allow it. Members of the management board have the right to represent the company in all judicial and extrajudicial activities. The method of representing the company by the management board is multi-person and is determined by the statute or, in the absence of such provisions, requires the cooperation of two members of the management board or one member of the management board and a proxy. A member of the management board is obliged to be loyal to the company and exercise due diligence in the performance of his duties. He may not disclose company secrets even after his mandate expires. In the event of a conflict of interests, he is obliged to disclose it and refrain from participating in decisions in which this conflict occurs.

Sources:

• Act of 15 September 2000 – Polish Commercial Companies Code;
• Act of August 29, 1997, Polish Tax Ordinance;
• Case files number: III FSK 1030/21, “Condition for performing the duties of a member of the management board” – Judgment of the Polish Supreme Administrative Court;