On 5 September 2013, the Belgian Supreme Court (Hof van Cassatie/Cour de Cassation) confirmed that directors of a limited liability company (naamloze vennootschap/société anonyme) are personally and fully liable for all corporate withholding taxes that remain unpaid by that company. The Supreme Court also held that the Belgian tax administration can reclaim the unpaid withholding taxes even before the bankruptcy procedure is finalised and the full extent of the uncollectible debt is known.
The company Axtron Group NV was declared bankrupt on 16 November 2006. Prior to the bankruptcy, for a period of 17 to 30 months, the directors of the company had consistently failed to pay the withholding taxes, even though the company had continued operating and paying wages.
Following bankruptcy, the tax administration launched legal proceedings to claim the withholding tax from the directors personally (and not from the estate), on the basis of Article 530, §1, 2nd paragraph of the Companies’ Code. On 10 May 2012, the Antwerp Court of Appeal ruled in favour of the tax administration and the directors petitioned the Supreme Court to overturn the appellate judgment. The reasoning of the directors was as follows:
First, the directors claimed that the tax administration could not claim the unpaid withholding taxes, as all claims by and for the benefit of the company must be instituted by the official receiver.
Second, the directors contended that the tax administration tried to collect the withholding taxes while the official receiver had not yet closed the bankruptcy. The directors argued that the tax administration should have waited until there was an inventory of all debts and assets of the company Axtron Group NV. According to this view, the tax authorities could only collect the withholding taxes which remained unpaid after the bankruptcy was closed.
The Supreme Court rejected all arguments by the directors and confirmed the appellate judgment ordering the directors to pay the full amount of the unpaid withholding taxes.
With regard to the first argument of the directors, the Supreme Court found that the consistent refusal to pay withholding taxes over a period of 17 to 30 months caused individual damage to the tax administration. As there was no ‘collective damage’ to all creditors of the company Axtron Group NV (in view of the directors’ personal liability), the tax administration as individual creditor was permitted to bring legal proceedings against the directors.
With regard to the second argument, the Supreme Court judged that the fact it is unsure whether a creditor will receive a sum out of a bankruptcy does not prohibit the creditor from claiming its individual damage directly from a third party. Consequently, the Supreme Court held that the tax administration could sue the directors even before the bankruptcy had been concluded.
A copy of the judgment is available at http://jure.juridat.just.fgov.be/pdfapp/download_blob?idpdf=N-20130905-3.
