Nerijus Zaleckas: New surprises for company leaders: for what decisions will they be personally responsible?

Nerijus Zaleckas, Zaleckas Partners vadovaujantis partneris

Recently, we have been hearing a lot about the fact that a company manager has been fined for failing to perform certain duties for which they were not previously punished, or that they must compensate for damage caused to the company. All this is related to the increased attention of state institutions, which is increasingly directed towards the personal liability of company employees for violations of the law committed by companies, and especially towards the personal liability of company managers.

On January 1, 2017, the new Code of Administrative Offenses came into force, which was supposed to simplify administrative prosecution and, for example, punish the cashier, not the company manager, for failing to issue a cash register receipt. It was also stipulated that fines could be imposed on managers or other responsible persons, board members or persons performing special functions.

The maximum possible fine, which the violator would have to pay from his or her own funds, has also been increased to 6,000 euros. Other legal acts provide for even higher fines. Violations are investigated and fined by almost 100 different departments, inspectorates and other services, and they impose fines on managers, usually without even considering who is responsible for a particular job.

For what non-performance of duties can managers be fined?

Most company managers are not even aware that they, not the company, may be fined for failing to perform certain duties. Trends in recent months indicate a particularly active desire by state institutions to hold managers accountable.

The State Tax Inspectorate began to fine managers for the fact that the company was late in paying VAT. The Supervisory Service of the Bank of Lithuania fined the manager of the company for failing to ensure that the company complied with the decision of the Director of the Supervisory Service of the Bank of Lithuania. And, finally, the Competition Council for the first time applied to court regarding a former director of a company with a request to restrict the right to hold the position of manager of a public and/or private legal entity for 4 years, to be a member of the collegial supervisory and/or management body of a public and/or private legal entity and to impose a fine of 9,000 euros.

Although it would be difficult to list all the cases in which managers may be fined, we will provide a short list of cases and innovations that may come as a surprise.

The Code of Administrative Offenses provides for liability for:

• Violations of the Law on the Legal Protection of Personal Data;

• Violations of the processing of personal data and privacy protection established in the Law on Electronic Communications;

• Illegal work (the difference from the previous procedure is that now liability is not associated with the number of persons working illegally);

• Violations of labor laws, occupational safety and health regulations (this should be paid special attention to, because after the entry into force of the new Labor Code, companies have new obligations, for the failure to fulfill which managers may be punished);

• Not suspending an employee from work who is intoxicated or under the influence of narcotics, psychotropic substances or other psychoactive substances;

• Violations of the wage calculation and payment procedure;

• Failure to comply with the transfer pricing documentation procedure (this is a novelty, as such liability was not previously provided for);

• Violations of the procedure for registering as a payer of individual taxes, when this is established in the relevant tax laws (previously, liability was provided only for violations of the procedure for registering in the general register of taxpayers, and now also for VAT);

• Violations of the procedure for calculating taxable income or calculating and paying taxes or other contributions (previously, only late payment of VAT was punishable);

• Violations of the rights of shareholders, members of agricultural companies, cooperative companies (cooperatives) (for example, for failure to convene general meetings of shareholders on time);

• Violations of creditors' rights (for example, failure to file a petition for the initiation of bankruptcy proceedings or late submission to the court);

• Failure to take measures to resolve the issue of reducing the authorized capital of AB and UAB in a timely manner in order to eliminate the difference between the equity capital of AB or UAB and the authorized capital resulting from losses;

• Violations of retail trade rules; Violations of return and exchange requirements;

• Failure to register foreign loans received by legal entities registered in the Register of Legal Entities of the Republic of Lithuania without a state guarantee, as well as loans granted to natural or legal persons whose permanent place of residence or registered office is not in the Republic of Lithuania, with the Bank of Lithuania in accordance with the Law on the Bank of Lithuania; Violations of the obligations established in the Law on the Prevention of Money Laundering and Terrorist Financing; Violations of the procedure for providing statistical data;

• Violations of the procedure for submitting documents and register data of a legal entity, its branch/representative office, a branch/representative office of a foreign legal entity or another organization to the JAR administrator or the administrator of the Legal Entity Participants Information System;

• Failure to use the state language in seals, stamps, forms, signs, official premises and other public notices of legal entities, in clerical work and in correspondence in the Republic of Lithuania. In this case, it should be noted that we do not have data that at least one Lithuanian company would be punished for correspondence in a language other than Lithuanian;

• Violations of merger control requirements (failure to submit a merger notification on time, implementation without authorization, violation of the conditions or mandatory obligations for the implementation of the merger).

One of the most severe consequences for contributing to a prohibited agreement between competitors or abuse of a dominant position concluded by an economic entity is provided for by the Competition Law. This may include restriction of the right to hold the position of head of a public and/or private legal entity for a period of 3 to 5 years, to be a member of the collegial supervisory and/or management body of a public and/or private legal entity, and an additional fine of up to EUR 14,481. It is important to note that termination of employment relations in this case does not eliminate the manager's liability.

This is only a very small part of the violations for which managers can be punished. The list can be supplemented taking into account the specifics of each company's activities and the requirements specifically applied to it. Therefore, managers should do their homework and carefully study the rules governing the activities of their companies. Legal verification of the company's operational processes could be an excellent alternative, which can also help avoid liability in the future. Failing this, managers should take out managers' civil liability insurance, which would compensate the civil and administrative fines imposed on the manager and attorneys' fees.

Prepared by:

Nerijus Zaleckas

APB Zaleckas Partners

Managing Partner