Personal Liability of Corporate Directors for Tax Obligations
Introduction
The principle of limited liability constitutes one of the foundational pillars upon which the modern corporate form rests. Shareholders of limited liability companies (spółka z ograniczoną odpowiedzialnością) and joint-stock companies (spółka akcyjna) generally enjoy protection from the claims of corporate creditors—a feature that renders these organizational structures particularly attractive despite their attendant regulatory burdens. This “corporate veil,” however, does not extend to members of the management board (zarząd). Those entrusted with directing corporate affairs may find their personal assets exposed to satisfy the tax liabilities of the entities they serve.
The legal framework governing such personal liability represents a sophisticated mechanism designed to incentivize prudent corporate governance while protecting the fiscal interests of the state. For practitioners advising corporate directors, a comprehensive understanding of this liability regime—including its triggering conditions, available defenses, and recent jurisprudential developments—is essential. This Article provides a systematic analysis of the statutory framework, examines the procedural requirements for imposing liability, and addresses the significant implications of the Court of Justice of the European Union’s landmark ruling in Case C-277/24 (Adjak).
I. The Statutory Framework for Director Liability
A. Primary Legal Sources
Two principal statutory provisions govern the personal liability of management board members for corporate obligations. Article 116 of the Tax Ordinance (Ordynacja podatkowa) establishes liability for tax arrears and related public-law obligations. Article 299 of the Code of Commercial Companies (Kodeks spółek handlowych) addresses civil-law liabilities. While these provisions share structural similarities, they operate in distinct spheres and contain important substantive differences that practitioners must carefully consider.
The legislative rationale underlying these provisions reflects a policy judgment that those who exercise managerial authority over corporate affairs should bear responsibility when their stewardship results in the inability of creditors—including the state in its capacity as tax collector—to obtain satisfaction from corporate assets.
B. Scope of Covered Obligations
Under Article 116 of the Tax Ordinance, joint and several liability extends to management board members for the following categories of public-law obligations:
The primary category encompasses tax arrears of limited liability companies, joint-stock companies, and simple joint-stock companies, including entities in formation (w organizacji). Additionally, liability attaches to fees and non-tax claims of the state budget and local government units where tax authorities possess assessment or determination authority. The regime further covers stamp duties and charges under local tax legislation, as well as social security contributions pursuant to Article 31 of the Social Insurance System Act, which incorporates Article 116 of the Tax Ordinance by reference. Finally, contributions to the Labor Fund, Guaranteed Employee Benefits Fund, and Bridge Pension Fund, together with health insurance contributions, fall within the scope of covered obligations.
II. Prerequisites for Imposing Personal Liability
A. Formal Procedural Requirements
The imposition of personal liability upon a management board member does not arise automatically upon the occurrence of corporate tax delinquency. Rather, the tax authority must satisfy certain procedural prerequisites and conduct a separate administrative proceeding directed at the individual director.
A threshold temporal requirement provides that proceedings against a management board member cannot be initiated prior to the payment deadline for the company’s tax obligation. Additionally, either a tax decision determining the amount of the obligation must have been served upon the company, or enforcement proceedings must have been commenced based upon a writ of execution issued pursuant to a tax declaration filed by the company.
Most significantly, the subsidiary nature of director liability requires that enforcement against the company’s assets must have proven wholly or partially ineffective. This requirement reflects the legislature’s determination that personal liability should serve as a secondary mechanism, activated only when the primary obligor—the corporation—lacks sufficient assets to satisfy its obligations.
B. Temporal Scope of Liability
The temporal boundaries of director liability are carefully circumscribed by statute. A management board member bears responsibility exclusively for those tax obligations whose payment deadline fell during the period of his or her service on the board. This temporal limitation serves both notice and fairness functions: directors should reasonably anticipate potential liability only for obligations arising during their tenure.
Illustrative Example: Consider a director appointed to the management board on March 1, 2024. The payment deadline for January 2024 VAT fell on February 25, 2024—prior to the director’s appointment. Notwithstanding that the underlying obligation arose before appointment, the director bears no personal liability for this arrear, as the payment deadline preceded his or her assumption of board responsibilities.
III. The Problematic Nature of Resignation
A. Formal Resignation Versus Functional Exercise of Authority
A common misconception among corporate directors holds that formal resignation from the management board automatically terminates potential liability exposure. Jurisprudential analysis reveals a considerably more nuanced reality.
Polish administrative courts have consistently held that the determinative criterion is the actual exercise of managerial functions rather than formal corporate status. Where a director continues to perform functions characteristic of board membership following formal resignation—such as executing documents on the company’s behalf, receiving correspondence in a representative capacity, or participating in managerial decision-making—liability may attach for obligations arising during this period of de facto service.
The Supreme Administrative Court’s decision of April 22, 2024 (Case No. III FSK 1193/23) reaffirmed this principle, holding that liability may encompass periods of functional board service even following formal resignation. This functional approach reflects judicial recognition that the protective purposes of the liability regime would be substantially undermined if directors could avoid responsibility through the mere formality of resignation while continuing to exercise actual control.
B. Evidentiary Requirements for Establishing Termination
The Supreme Administrative Court’s judgment of January 10, 2018 (Case No. II FSK 3461/15) provides instructive guidance regarding the evidentiary standards applicable to establishing effective termination of board membership. Several principles emerge from this jurisprudence.
First, directors should secure proof of delivery for resignation documents. A resignation letter unaccompanied by evidence of proper submission may prove insufficient to establish termination. Second, immediate and complete cessation of all managerial activities is essential. Directors should refrain from executing any corporate documents, even upon the informal request of remaining board members. Third, while the entry in the National Court Register possesses declaratory rather than constitutive effect, timely notification to the registration court provides significant evidentiary value in subsequent proceedings.
IV. Exculpatory Defenses (Przesłanki Egzoneracyjne)
Even where the statutory prerequisites for liability are satisfied, a management board member may avoid personal responsibility by establishing one of several affirmative defenses. Critically, the burden of proof with respect to these exculpatory circumstances rests upon the director.
A. Timely Filing of Insolvency Petition
The most frequently invoked defense involves demonstrating that an insolvency petition was filed within the statutorily prescribed timeframe. The concept of “proper time” (właściwy czas) constitutes the analytical fulcrum of this defense.
Under the Insolvency Law (Prawo upadłościowe), a debtor is deemed insolvent when it has lost the ability to perform its due monetary obligations. A rebuttable presumption of insolvency arises where payment delays exceed three months. Alternatively, insolvency exists where monetary obligations exceed asset values and this condition persists for more than twenty-four months.
From the moment insolvency arises, management board members have thirty days to file a petition for declaration of bankruptcy. Notably, a petition filed by any authorized person—including another board member or even a creditor—satisfies this defense for all board members, provided filing occurred within the prescribed period.
A curious paradox emerges from the intersection of insolvency law and tax liability doctrine. Administrative courts have held that arrears owed to even a single creditor, including tax authorities, may establish insolvency for purposes of triggering the filing obligation. Yet an insolvency petition predicated upon the existence of only one creditor may be dismissed by the bankruptcy court as lacking proper grounds, since formal insolvency proceedings presuppose multiple creditors. Nevertheless, for purposes of the Article 116 defense, the mere filing of a petition—regardless of its ultimate disposition—suffices to establish the director’s compliance with statutory duties.
B. Initiation of Restructuring Proceedings
Since the 2016 amendments to Polish insolvency and restructuring law, an additional exculpatory ground exists where restructuring proceedings were opened in proper time or where a composition was approved in approval proceedings (postępowanie o zatwierdzenie układu).
C. Absence of Fault
This defense presents the greatest evidentiary challenge. Courts apply a stringent standard in evaluating claims of non-culpability.
Circumstances that courts have consistently rejected as establishing absence of fault include: internal allocation of responsibilities within the board (the “another director handled finances” defense); unfamiliarity with Polish law or language; reliance upon accounting or financial personnel; and optimistic projections regarding corporate recovery.
By contrast, circumstances that may support a finding of non-culpability include: documented serious illness rendering the performance of duties impossible; and factual exclusion from financial information (where accompanied by evidence of affirmative efforts to obtain such information).
D. Identification of Corporate Assets
A management board member may avoid liability by identifying specific corporate assets from which enforcement would enable satisfaction of tax arrears “in significant part.” This defense requires identification of assets that are concrete and actually existing, capable of identification with sufficient particularity, and of value adequate to permit meaningful creditor satisfaction.
The identification of assets possessing merely symbolic value does not satisfy this requirement.
V. Limitation Periods
A. Prescription of the Company’s Tax Obligation
Personal liability may be enforced only until the underlying corporate tax obligation becomes time-barred. The general limitation period is five years, calculated from the end of the calendar year in which the tax payment deadline fell.
B. Time Limit for Issuing Liability Decisions
Article 118 of the Tax Ordinance imposes an additional temporal constraint: a decision imposing third-party liability cannot be issued where five years have elapsed from the end of the calendar year in which the tax arrear arose. This limitation operates independently of any suspension or interruption of the prescription period applicable to the primary obligation.
VI. The CJEU Judgment of February 27, 2025: A Paradigm Shift in Procedural Rights
The Court of Justice of the European Union’s judgment of February 27, 2025, in Case C-277/24 (Adjak) fundamentally alters the procedural landscape for management board members facing personal liability for corporate tax obligations. This landmark ruling opens new defensive avenues that Polish administrative practice had previously foreclosed.
A. The Antecedent Polish Practice: Bifurcated Proceedings
Under Polish law, the joint and several liability of a management board member for corporate tax obligations is established through two distinct proceedings.
The first stage comprises tax proceedings directed at the company (postępowanie podatkowe), in which the tax authority determines the existence and amount of the tax obligation. The company alone possesses party status in these proceedings.
The second stage consists of proceedings regarding joint and several liability (postępowanie w przedmiocie odpowiedzialności solidarnej), initiated against the management board member following unsuccessful enforcement against the company’s assets.
The critical deficiency in this bifurcated structure lay in the prevailing administrative and judicial interpretation that former board members possessed no “legal interest” (interes prawny) under Article 133 of the Tax Ordinance sufficient to confer party status in tax proceedings conducted against the company. Moreover, in the subsequent liability proceedings, the board member could not challenge the determinations contained in the tax decision—such proceedings were understood to address solely whether the statutory prerequisites for personal liability under Article 116 were satisfied.
The practical consequence of this interpretive framework was that management board members bore personal liability for obligations whose existence and amount they had no procedural opportunity to contest.
B. The Court’s Holding
The Court of Justice held that Article 273 of the VAT Directive, read in conjunction with the right of defense and the principle of proportionality, must be interpreted as follows:
The exclusion of a third party (such as a management board member) from tax proceedings conducted against the company is, standing alone, permissible and does not violate EU law.
However, depriving that third party of any effective means to challenge the factual findings and legal characterizations made by the tax authority, when liability proceedings are subsequently conducted against him or her personally, is impermissible as violating the essence of the right of defense.
In essence, the Court accepted the two-stage procedural structure while mandating that meaningful opportunity to contest the underlying determinations must be preserved in the second stage.
C. Doctrinal Foundations
The Court emphasized several foundational principles in reaching its conclusion.
Regarding the right of defense, the Court observed that addressees of decisions that perceptibly affect their interests must be afforded an effective opportunity to present their position regarding the evidence upon which the authority intends to rely.
Concerning the effect of finality, the Court held that the mere fact that a decision against the company has become final cannot justify depriving the management board member of the right to challenge the determinations contained therein during proceedings concerning his or her personal liability. Finality cannot be invoked to defeat the very essence of defense rights.
With respect to access to files, the Court determined that a third party in joint and several liability proceedings must have access to the files of the tax proceedings conducted against the company.
D. Practical Implications for Practitioners
For pending proceedings: Directors currently facing personal liability proceedings may invoke the CJEU judgment to demand the opportunity to challenge determinations from the tax decision issued against the company. This includes both factual findings (e.g., whether particular transactions occurred) and legal characterizations (e.g., whether applicable provisions were correctly applied). Full access to the tax proceeding files must be provided.
For concluded proceedings: The judgment may provide grounds for reopening (wznowienie postępowania) where the director was denied the opportunity to contest underlying determinations. Where proceedings concluded with a final court judgment, an application for reopening may be filed with the administrative court. In cases where the director satisfied the obligation but was procedurally precluded from mounting an effective defense, claims for damages or restitution may lie.
Scope of permissible challenges: In light of the CJEU ruling, directors in liability proceedings should be able to contest: factual determinations regarding corporate transactions; legal characterization of economic events; the quantum of the determined obligation; the regularity of evidentiary proceedings; and the evaluation of gathered evidence.
E. Limitations and Qualifications
The Court noted that the right of defense does not possess absolute character and may be subject to limitations grounded in: confidentiality requirements and professional secrecy; protection of the rights of the company and other third parties; and public interest considerations, including effective tax collection.
Nevertheless, such limitations cannot operate to defeat the very essence of defense rights.
VII. Risk Mitigation Strategies
A. For Incumbent Directors
Directors currently serving on management boards should implement several protective measures. Ongoing monitoring of corporate financial condition is essential; reliance exclusively upon information provided by financial departments is insufficient. Contemporaneous documentation of knowledge and actions is advisable, as directors must be prepared to demonstrate when they became aware of difficulties and what responsive measures they undertook. Immediate response to warning indicators—such as delays in payments to social security or tax authorities—is imperative. Finally, consultation with legal counsel prior to significant decisions, particularly when contemplating resignation during periods of corporate distress, provides important protection.
B. Prior to Accepting Appointment
Prospective directors should conduct appropriate due diligence regarding corporate financial condition before accepting nomination. Examination of tax compliance history through certificates of non-delinquency from relevant authorities is advisable. Understanding the realistic state of corporate obligations is essential, bearing in mind that liability attaches to obligations whose payment deadline falls during one’s tenure.
C. Upon Resignation
Directors departing from the management board should submit a written resignation with proof of delivery, preferably by registered mail with return receipt or in notarial form. Complete and immediate cessation of all managerial functions from the effective date of resignation is essential. Where the company is insolvent at the time of resignation, consideration should be given to filing an insolvency petition prior to departure, as doing so may provide subsequent protection.
Conclusion
The personal liability of management board members for corporate tax obligations represents a significant departure from the general principle of limited liability that otherwise characterizes the corporate form. The regime reflects a legislative judgment that those who exercise actual control over corporate affairs should bear personal responsibility when their stewardship results in the inability of tax authorities to obtain satisfaction from corporate assets.
For practitioners, several key principles emerge from this analysis. First, awareness of risk is paramount: service on a management board carries not merely prestige but substantial potential personal exposure. Second, proactive engagement with corporate financial affairs is essential: monitoring the situation and responding promptly to warning signs. Third, meticulous documentation practices should be maintained: in the event of a dispute, the director bears the burden of establishing exculpatory circumstances. Fourth, professional guidance should be sought: in matters involving potential personal liability, specialized expertise is invaluable.
The CJEU’s judgment in Adjak has significantly enhanced the procedural protections available to directors facing personal liability. Nevertheless, the burden of establishing affirmative defenses remains with the director. Prudent practitioners will advise their clients to prepare for this eventuality before difficulties arise.
Author: Kancelaria Prawna Skarbiec
This Article is intended for informational purposes and does not constitute legal advice. Consultation with qualified tax counsel is recommended for specific matters.
Founder and Managing Partner of Skarbiec Law Firm, recognized by Dziennik Gazeta Prawna as one of the best tax advisory firms in Poland (2023, 2024). Legal advisor with 19 years of experience, serving Forbes-listed entrepreneurs and innovative start-ups. One of the most frequently quoted experts on commercial and tax law in the Polish media, regularly publishing in Rzeczpospolita, Gazeta Wyborcza, and Dziennik Gazeta Prawna. Author of the publication “AI Decoding Satoshi Nakamoto. Artificial Intelligence on the Trail of Bitcoin’s Creator” and co-author of the award-winning book “Bezpieczeństwo współczesnej firmy” (Security of a Modern Company). LinkedIn profile: 18 500 followers, 4 million views per year. Awards: 4-time winner of the European Medal, Golden Statuette of the Polish Business Leader, title of “International Tax Planning Law Firm of the Year in Poland.” He specializes in strategic legal consulting, tax planning, and crisis management for business.
