a. Tax Liability

b. Insurance debts

c. Liabilities towards third parties

(lenders and creditors) and

towards the company

Tax Liability

In Greece since 1923[1] has been established the personal and joint liability of the management of companies – initially the management of societes anonymes and gradually the rest company forms – for the certified corporate tax liability to the State. Today, the liability is regulated by the provisions of the Art. 50 of the Tax Procedure Code (L. 4174/2013, hereinafter referred to as TPC), according to which, essentially, provisions of the previously in force Art. 115 of the L. 2238/1994 were largely transferred and reformulated, expanding, nonetheless, their subjective and objective scope. A basic differentiation of the current law is the establishment of personal liability for the management of any legal person or legal entity and therefor any company type, in contrast to the exhaustive enumeration of specific company types of the previous legislative regime.

According to the 50 (1) of the TPC, the individuals who are managers, presidents, administrators, managing directors, chief executives to the management and liquidators of the legal persons and the legal entities at the time of their dissolution or merging, bear a personal and joint liability for the tax payment, the interests and the penalties, for which the legal persons and legal entities are liable, along with tax withheld, regardless the time of their assessment. In the eventuality that two legal entities merge, the entity that conglomerates the other or the new legal entity established by the merger bear joint liability along with the aforementioned individuals, for the payment of the liable taxes, as mentioned in the previous paragraph, of the dissolved legal entity, regardless the time of their assessment. Consequently, the above mentioned liability is established initially at the dissolution or the merger of the legal entity. The concept of the winding-up of a company, in line with the settled case-law with reference to the relevant, previously in force, provision of the Art. 115 (1) of the L. 2238/1994, is referred to the dissolution of a company.

Nonetheless, the personal and joint liability of the company management, with regards to the latter’s tax liabilities, is not only restricted to the dissolution or the merger of the company, but it is also established during its operation. Specifically, as defined in the Art. 50 (2) of the TPC, the individuals referred to paragraph 1 are personally and jointly liable for the withholding tax, the VAT and all the attributable taxes, during the operation activity of the legal entity that they represent, as follows: a) If tax was withheld, all the individuals bearing one of the aforementioned positions from the expiry deadline of the tax attribution and after. b) If no tax was withheld, all the individuals, having one of the aforementioned position at the time that there was the obligation of withholding tax.

It is concluded, based on the aforementioned provisions, that, during the dissolution or the merger of a company, the liability of the company management concerns any type of taxes and penalties, as regulated by the TPC, as well as the proportionate interests. On the contrary, the management’s liability, during the operation activity of the company, is limited to the withheld taxes, the VAT and all the attributable taxes, and, consequently, the liability is limited with regards to the objective scope. Essentially, this differentiation has a historical origin, as the Legislator already by 1923 has established the corresponding liability only for the case of the dissolution of the company, justifying it on the need on behalf of the State to ensure, as far as possible, the collection of the legal entity’s tax, before its “disappearance”. In the course of time, the growth of the tax evasion along with the usual inadequacy from the part of the company to cover its tax debts from its own assets, has led to the expansion of the liability of the company management also during its operation, nonetheless, only for the aforementioned types of taxes, which due to their nature are subject to special “punishment”.

In addition to the above, the legal representatives of the companies, liable to single property tax (SPT, in Greek: ΕΝ.Φ.Ι.Α.), but also the liquidator or the temporary manager of the company, which has been wound up or is under mandatory management, are fully responsible along with the liable individuals for the payment of the interests and the penalties due to their actions or omissions (Art. 50 (5) of the TPC)[2]. The aforementioned joint liability of the legal representatives of the companies concerns only the interests and the penalties, resulting from the non-payment or late payment of the SPT (ΕΝΦΙΑ) or other relevant infringements, and it is applied during the operating activity of the company. In contrast, the joint liability for the payment of the SPT (ΕΝΦΙΑ) due by the company, arise at the stage of the dissolution of the company, according to Art. 50 (1) of the TPC. A substantial differentiation of the paragraph 5, in relation to the other paragraphs of the Art. 50 of the TPC, is the additional condition of the causal link between the imposition of the said interests and penalties on the company and the actions or omissions by its legal representatives, liquidator or the temporary manager.

The jointly liable individuals along with the company, may exercise any right that the company would have, against the Tax Administration authorities, according to the aforementioned provisions of the Art. 50 of the TPC. This could be accepted as a case-law, even without the adoption of the aforementioned provision, nonetheless, with this provision it is strengthened and becomes indisputable, a fact of particular importance given the heavy liability established by the provisions said.

[1] With art. 41 (6) of the L. 1640/1919 (“code of laws for the proceeds of taxation”, as it was included to the aforementioned law with its amendment by the art. 19 (1) of the Statutory Order  of the 19th of March 1923

[2] As this provision was added to the Law with Art. 9 (3) of the L. 4223/2013.

Insurance debts

The joint liability of the company management for the insurance debts of the company was already provided for by 1999. It is intended, with the new provisions of the L. 4321/2015 (Gov. Gazette 32/21.3.2015) for the relaunching of the economy, the regulation of the ever increasing overdue tax and insurance liabilities. In the framework of the aforementioned provisions it was reintroduced the joint liability of the management of the company and for the first time the joint liability of the shareholders and partners for the insurance debts of the companies.

Thus, according to the provision of the Art. 31 (1) of the L. 4321/2015, the individuals, who are legal representatives, presidents, managers, managing directors, chief executives to the management and liquidators of the company at the time of the dissolution or the merging, are personally and jointly liable for the payment of the insurance debts, additional charges, increments and other charges, that the company is liable to the Institutions of Social Security, regardless the time of their assessment. In fact, on the express dictate of the law, the personal and joint liability of the individuals, bearing the aforementioned professional titles, for the payment of the insurance levies, additional charges, increments and other charges, is established also for the period of time that the company is active.

Further on, amongst others, the company management, bearing personal and joint liability for the debts of the company to the Institutions of Social Security, may repay or independently regulate the insurance liabilities of the company that accrued, when entering upon their duties, according to the existing provisions concerning the regulation of debts, along with the liabilities accrued during their mandate, regardless the time of assessment (art. 31 (3) of the L. 4321/2015). With this regulation the jointly co-liable individuals repay or independently regulate the corporate debts, exempting the company as well as themselves from the consequences that entails the establishment of personal liability for the insurance debts. Moreover, the jointly co-liable individuals for the payment of the corporate insurance debts may exercise, along with the company, any right, that the company would possess, against the Institutions of Social Security, mutatis mutandis to the provision of the Art. 50 (7) of the TPC with respect to the tax liabilities.

Liabilities towards third parties (lenders and creditors) and towards the company

Companies, as legal entities, have their own (legal) personality and volition expressed via their management bodies. For their actions the companies are liable, at first, towards third parties.

The company management, as a legal entity’s body, does not possess a legal personality, nor it constitutes a union of individuals and, consequently, it cannot be the subject of rights and obligations, nor, of course, the subject of any attribution of responsibility. To the contrary, the individuals, who constitute the management of the company, i.e. the company management, are responsible for their actions or omissions, in connection with the exercise of the administrative authority that was conferred to them.

Specifically, on Art. 71 (b) of the Civil Code (CC) is established concurrent, several and joint liability of the company management – and also for the rest of the legal persons – towards third parties, when from their wrongful actions is incurred the liability of the company according to Art. 71 (a) of the CC. Thus, pursuant to Art. 71 (a) of the CC “the legal entity is liable for the actions or omission of the bodies that represent it, as long as the action or omission occurred during the execution of the duties that were assigned to it and create the obligation for compensation”, while, according to Art. 71 (b) of the CC, the responsible person is also jointly and severally liable.

According to the aforementioned, with the provision of the Art. 71 (b) of the CC is established the joint and several liability of the company management, concurrent to the liability of the company itself for the damaged caused to a third party due to the management’s fault. The most common reason for establishing liability is the fulfillment of the conditions of the application of the Art. 914 of the CC on torts and the Art. 919 CC on offence of principles of morality. The provision of the Articles 914 of the CC and 919 of the CC, as well as that of the Art. 71 (b) of the CC require the management’s fault, for determining liability, in contrast to the legal person’s liability, which is strict, according to Art. 71 (a) of the CC.

In conclusion, the company management along with the company bear joint liability for the damage caused to third parties, by their own wrongful acts, while performing their duties.

Apart from the aforementioned joint liability according to Art. 71 (b) of the CC, the management of the company is liable also towards the company for the damage caused to it due to their wrongful conduct. A special provision of the Art. 22 of the Implementing Decree 2190/1920 refers to the liability of a member of the management of a societé anonyme towards the latter for damage caused to it, and also the Art. 26 of the Law 3190/1955 for the liability of the administrators of a limited liability company towards the latter for the damaged caused to it by them. A similar provision of the Art. 67 of the Law 4072/2012 provides for the liability of the administrators of a private company (IKE in Greek) towards the latter for breaches of the law, infringements of its statute and the partners’ decisions, as well as for any administrative fault. In these cases, also, it is required the existence of fault form the part of the company’s manager, but with the burden of proof of the management of a societé anonyme reversed.

The art. 98 of the Bankruptcy Code (BC) provides for the liability of the members of the management of a societé anonyme towards its creditors in cases of the by fault delay of bankruptcy [art. 98 (1) of the BC] and the by fault cause of bankruptcy [art. 98 (2) of the BC]. Specifically, the provision of the art. 5 (2) of the BC provides that the debtor is obliged to file for bankruptcy within fifteen days, once the conditions are met, while the art. 98 (1) determines that, if the declaration of bankruptcy of the S.A. is not submitted in due time, the members of the Board of Directors at fault for the delay are responsible for compensating the damage to the creditors of the company. The corporate creditors’ compensation for their damage regards the compensation for the bankruptcy assets to the level if it weren’t for the delay of the declaration of the bankruptcy. According to art. 98 (1), it must be noted that the instigator of the by fault delay of the declaration of bankruptcy bears, also, liability, and consequently the de facto manager. Furthermore, art. 98 (2) of the BC provides for the liability of the management of a societé anonyme for the at fault cause of bankruptcy towards the insolvency creditors. In the case of par. 2, the management’s measure of liability alters. Thus, while for the application of par. 1 is required even a minor negligence, par. 2 requires willful misconduct or gross negligence by the management members. According to par. 4 of the aforementioned article, the above are also applied in the cases of limited liability companies and private companies.

The above mentioned provisions aim on the one hand to protect the bankruptcy creditors of the S.A.s, Ltds and PCs from the erred and by fault exercise of the administrative authority by the management members of these companies, which entails the reduction of their bankruptcy assets and their insolvency, on the other hand to draw the managers’ of private companies attention, in order to take all the necessary measures, when the companies are in a stage of collapse.