In practice, it is not uncommon for the Managing Director or the Sole owner of the capital of a commercial company to pass away. In that case, many legal and factual issues arise, as the company is left without a functioning body of representative authority and therefore it cannot perform any legally valid actions.
According to the Commerce Act, unless otherwise envisioned in the company’s Articles of Association, the company’s activities may be continued by the decision of the heirs of the shareholders. They have a three-month period to continue said activity and to appoint a new Managing Director.
This raises the following question – are there any exceptions to this principle, and is it possible for someone outside the group of heirs to appoint a representative of the company?
The answer is positive. Pursuant to Article 11, para 2 and 3 of the Tax and Social Insurance Procedure Code, when the revenue authority or the public enforcement officer needs to carry out procedural actions against a company without a representative, they may request from the competent regional court to appoint a temporary or special representative.
With this rule, the Tax and Social Insurance Procedure Code introduces a significant exception to the general principle that only the heirs can decide on the continuation of the company’s activities and the appointment of its representatives. In this case, if no representative is appointed within the given three-month period after the company has become unrepresented, the court may be authorized to do so upon a motion filed by a competent public enforcement officer or a revenue authority.
Why was this exception introduced?
Among the primary objectives of the law is to ensure that any tax audits or enforcement procedures for public liabilities that have already been initiated, can be successfully concluded, and that the absence of an acting managing director will not lead to circumvention of the law in order to evade tax obligations.
However, the scope of this exception is narrow, as it is designed solely for the purposes of the tax legislation and it does not limit the rights of the shareholders, respectively their heirs, to decide whether and how to continue the company’s activities and its representation.
Therefore, for this exception to be applied, all prerequisites, given by the law, must be met.
What are the prerequisites for appointing a temporary representative?
- Firstly, the company must have been without an acting representative for more than three months. This gives sufficient time for the heirs to decide whether to organize the company’s representation
- Secondly, there must be specific reasons justifying the need for the appointment of a temporary representative. Such reasons can only involve procedural actions that the revenue authority or public enforcement officer must carry out and which cannot be postponed.
Who can request the appointment of a temporary or special representative?
This is why the appointment of a temporary or special representative can be requested only by the revenue authority or the public enforcement officer when, during their activities, they determine that the aforementioned actions are necessary.
No one else – neither any of the heirs, nor a third party – has the right to request such an appointment.
Who appoints a temporary representative?
To ensure the lawful application of the exception introduced, the law empowers only the court to decide if a temporary representative should be appointed for the company.
This way the court examines whether there are indeed reasons for the appointment of a temporary representative, thus protecting both state interest and the interest of private parties.
How does the procedure for the appointment of a temporary representative progress?
- Request for the appointment
The proceedings begin with a request for the appointment of a temporary representative. The request must be reasoned – it shall justify the need for the appointment and indicate that all prerequisites are fulfilled.
- The request is submitted to the court having jurisdiction on the place of the registered seat and headquarters of the company
- Court Order
The court rules on the request in a reasoned order within a short period: no later than three days from the submission of the request.
In the order, the court appoints a specific individual as the temporary or special representative, and it also sets a term for the appointment. The court order is not subject to appeal.
Scope of the representative authority
In its order, the court limits the scope of the representative authority: temporary or special representation is provided for specific purposes only, such as representation before the tax authorities during a tax audit.
Term of representation
A key aspect of the proceedings under Article 11, para. 2 and 3 of the Tax and Social Insurance Procedure Code is that the court must define the term within which the representation is valid. This term can be determined in two ways: until the completion of specific actions (e.g., completion of the audit), or until the expiration of a defined period (e.g., one year from the issuance of the court order).
The article above is for information purposes only. It is not (binding) legal advice. For a thorough understanding of the subjects covered and prior to acting on any issue discussed, we kindly recommend Readers to consult attorneys at Ilieva, Voutcheva & Co. Law Firm.
