Personal Liability to Directors and Officers for Company Taxes
Daniel Scott · December 21st, 2006
On November 17, 2006, the House of Assembly of Bermuda passed the Taxes Management Amendment Act 2006 (the “Amending Act”) and thereby added a potentially significant source of personal liability for directors and officers of Bermuda companies.
The Amending Act adds to the provisions of the Taxes Management Act 1976 (the “Original Act”) pertaining to the collection and recovery of any tax. The Original Act provided that any tax owing was a debt due to the Crown. The tax collector was empowered to institute proceedings for the collection of that debt.
The Amending Act significantly broadens the scope of that power. The tax collector is now able to jointly and severally sue the directors and officers of a company for any unpaid taxes that became due while they were directors or officers. The new language is sufficiently broad in scope to include persons who cease to be directors or officers or who ceased to be directors and officers prior to the coming into force of the Amending Act. The Amending Act makes the liability retroactive and exposes directors and offers to personal liability for “back” taxes.
For the purposes of the foregoing, “officer” is very broadly defined and includes, in addition to all of the positions that would ordinarily be considered officers pursuant to the Companies Act 1981, any individual who performs functions for a company or other body corporate that are similar to those normally performed by an individual appointed by the company as an officer. “Tax” includes any employment tax, betting duty, contracts exchange tax, hospital levy, hotel occupancy tax, passenger departure tax, payroll tax, timesharing occupancy tax or timesharing services tax payable to the Crown and any penalties associated with the late payment of any such tax, levy or duty.
The Amending Act has received Royal Assent and became operative on December 7, 2006.
Comment: Although there are legal policy objections in principle to the establishment of liability retrospectively, which have been drawn to the attention of the Ministry of Finance, the legislation has become effective. Persons who have served as directors or officers of companies with employees in Bermuda should verify that the taxes have been paid and persons who assume posts as directors and officers should first satisfy themselves that they are not assuming an unknown liability before agreeing to serve.