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Commercial companies

The statute of limitations of liability of a management board member for company’s obligations

Autor Maria Czechowska
Art. 299 § 1 of the Commercial Companies Code - Responsibility of a member of the management board for the ‘ordinary’ obligations of the company  If enforcement proceedings against a company proves unsuccessful, members of the management board are jointly and severally liable for company's obligations. In other words, in case of a very weak financial condition of the company (of the debtor), the creditor may ask each member of the management board to pay the debt ‘instead of’ the company, from their own assets.  This provision is most often applied when the company is in arrears with payments for classic invoices (such as rent, sales, supplies, services).  The provision of art. 299 § 1 of the Commercial Companies Code indicates the so-called tortious liability (compensation, non-contractual liability), and therefore the source of limitation of this liability is to be found in the Civil Code (art. 4421 § 1), which sets a three-year limitation period. The limitation period against a member of the management board begins to run from the date on which the creditor became aware of the ineffectiveness of enforcement against the company, or by exercising due diligence could have become aware of it. Such a situation will most often occur with the delivery of a decision to discontinue enforcement proceedings against the company for that reason (although this is not a statutory rule).  Article 299 of the Commercial Companies Code and Article 4421 of the Civil Code are general provisions. Therefore, the regulations concerning the statute of limitations of special obligations (tax and donation based obligations) should be sought in specific provisions - in the Tax Ordinance and in the Public Finance Act.  Article 118 § 1 of the Tax Ordinance – the statute of limitation of liability of a member of the management board for the company's tax obligations (e.g. VAT, CIT)  Article 116 of the Tax Ordinance regulates the liability of members of the management board of a company for tax arrears, while the provision of Article 118 § 1 of the Tax Ordinance indicates its limitation period of 5 years: a decision on the tax liability of a third party cannot be issued if 5 years have passed since the end of the calendar year in which the tax arrears arose.  When analysing the provision of Article 118 of the Tax Ordinance, it should be noted that it establishes two limitation periods: 
  • the limitation period for the right to issue a decision on the tax liability of a third party (§ 1) and 
  • the limitation period for the liability that results from a decision on the tax liability of a third party (§ 2). 
  Significantly - although pursuant to § 1, a decision cannot be issued after the lapse of the 5-year period (from the end of the calendar year in which the tax arrears arose), such a decision can be delivered after the expiry of the limitation period. It i also emphasised by administrative courts (e.g. judgment of the Supreme Court of 22.11.2010, III UK 27/10, judgment of the Supreme Administrative Court of 03.03.2011, I FSK 350/10).  The running of the limitation period under § 1 (issuance of a decision) cannot be interrupted or suspended, as the Tax Ordinance does not provide for provisions in this regard. This means that the time limit cannot be extended, but at most may be shortened as a result of payment of tax or remission of tax arrears. On the other hand, in case of § 2 (limitation of liability), the course of the limitation period may be suspended or interrupted, as Article 70 § 2 point 1 and § 3 and 4 of the Tax Ordinance applies accordingly.  Art. 66b section 1 of the Public Finance Act - the statute of limitation of liability of a member of the management board for reimbursement of EU funds granted to the company  Pursuant to the cited provision, a decision on the liability of third parties for liabilities to reimburse funds referred to in art. 60 item 6 shall be issued before the lapse of five years from the end of the calendar year in which the decision, referred to in art. 189 section 3b, or the decision referred to in 207 section 9, became final.  Therefore, this provision, in contrast to the Tax Ordinance, dictates that the start of the limitation period should be counted only from the moment when the decision ordering the company to return the donation became final (and not from the moment when the claim arose at all, which could already be the case when a non-final decision ordering the company to return the donaiton was issued).  Liability under the Public Finance Act should be treated as a particularisation of liability under the Tax Ordinance. Therefore – in case of the liability of a member of the management board of a company that was obliged by a decision to return a donation from EU funds - with regard to the limitation period of liability of the member of the management board, the Public Finance Act will apply (and not the Tax Ordinance). As a consequece, the limitation period may be much longer, as the moment at which the (tax) arrears arise is not the same as the date of finality of the decision.  However, the exception to the general rule arising from the wording of the Tax Ordinance applies only to donations involving European funds. This means, therefore, that the general rules resulting from Article 118 of the Tax Ordinance apply to decisions on the liability of third parties in connection with the payment of a donations from national funds.  Maria Czechowska  Trainee attorney-at-law 
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