The General Manager’s Comprehensive Liability

Are you aware of the extent of the liability assumed by a General Manager in a Company?

In today’s corporate environment, the decisions and actions taken by a company, and the consequences arising therefrom, no longer affect only the assets of the legal entity itself, or the third parties involved in such actions. On the contrary, current legislation extends beyond these boundaries and, in certain circumstances, transfers liability to natural persons linked to the company.

One of these natural persons is the General Manager, the governing administrative body of Corporations (Sociedades Anónimas); who, depending on specific circumstances and by virtue of their role as the company’s highest-ranking representative, may personally incur corporate, tax, and even criminal liability.

This raises an important question: under what circumstances does such liability apply? The main cases in which it may arise are detailed below:

 

Corporate Liability

According to the Peruvian General Companies Act (Ley General de Sociedades), the General Manager is liable to the company, its shareholders, and third parties for damages caused by breach of duties, willful misconduct, abuse of authority, or gross negligence. Specifically, the General Manager is responsible for, among other matters:

  • The existence, regularity, and veracity of the accounting books, records, and any applicable register. For example, the Financial Statements and the updating of Corporate Books pursuant to General Meetings held.
  • Internal control of the Company’s assets, in order to protect them against unauthorized use, and to ensure the recordkeeping of all transactions.
  • The veracity of the information provided to the Board of Directors and the General Shareholders' Meeting.

In other words, the General Manager must ensure that the obligations and activities described above are carried out in compliance with legally established terms. Otherwise, they may be held liable for any damages that may arise from non-compliance therewith.

In addition, if the Company is in an irregular situation (for example, due to accumulating losses and falling into a ground for dissolution), the General Manager may be held liable without limitation for all acts carried out by the company, being required to fulfill the corresponding obligations, as well as for any resulting damages.

 

Tax Liability

Pursuant to the Peruvian Tax Code, the General Manager of a company is jointly and severally liable when, due to willful misconduct, gross negligence, or abuse of authority, the tax debts of the Company are left unpaid. For such purposes, the existence of these elements is presumed under the following instances of non-compliance, among others:

  • Accounting irregularities, by failing to maintain accounting records or by keeping two or more sets of books or records for the same accounting system with conflicting entries.
  • Alteration of payment vouchers, by issuing invoices, debit notes, or credit notes using duplicate serial or sequential numbering.
  • Improper use of tax benefits, by utilizing tax-exempt goods or assets with tax benefits for activities other than those permitted.
  • Omissions in declarations, such as, for example, omitting employees from payroll declarations; and failing to comply with the Ultimate Beneficial Owner declaration.

Other situations that give rise to joint and several liability may exist outside of those established by law, in which case the existence of willful misconduct or gross negligence must be proven.

Once joint and several liability has been attributed, the Peruvian Tax Authority (SUNAT) may demand payment of the debt indistinctly from the debtor company, from the jointly and severally liable General Manager, or from both simultaneously.

 

Criminal Liability for Workplace Accidents

The Peruvian Criminal Code establishes that if Occupational Safety and Health regulations are breached, thereby endangering the life, health, or physical integrity of an employee, the responsible party may be punished with imprisonment for a term of no less than 1 year and no more than 4 years.

Furthermore, if such non-compliance with Occupational Safety and Health regulations causes the death of an employee or third parties, or results in serious injuries, provided that such outcome could have been foreseen, the responsible party may be punished with imprisonment of a term of no less than 4 years and no more than 8 years in the event of death, and no less than 3 years and no more than 6 years in the event of serious injury.

In this context, should any of the aforementioned scenarios occur and it is determined that the General Manager was in charge of Occupational Safety and Health matters, they may be held criminally liable.

It should be noted that, from a civil law perspective, liability may equally apply to the General Manager, and payment of indemnification for damages may be demanded.

 

Administrative and Criminal Liability

Law No. 30424, which regulates the administrative liability of legal entities in criminal proceedings, identifies various offenses that may trigger the administrative liability of the legal entity and, simultaneously, the criminal liability of the General Manager, among other representatives. Among such offenses are, for example, active bribery and influence peddling.

The General Manager, in their capacity as administrator of the Company, becomes an individual whose actions can be directly attributed to the legal entity. If the Manager commits an offense in the performance of their duties and for the benefit of the Company, one of the grounds for attribution of liability is automatically met. Likewise, the General Manager will be held liable for their subordinates, provided that there has been a failure to fulfill supervisory, oversight, and control duties.

 

How can we help you?

The various forms of liability associated with the General Manager demonstrates that corporate management requires a preventive and cross-functional approach.

A lack of knowledge of the company’s internal and operational processes does not constitute an exemption from the liabilities described above. Instead, both the Company and its representatives must ensure the implementation of various measures that contribute to the identification of contingencies and mitigation of risks, with the support of a specialized legal team.

At BDO Servicios Legales y Laborales S.A.C., we place our team of specialists at your disposal to assist you in the assessment, design, and implementation of the necessary measures to ensure the company's legal compliance and thereby mitigate or eliminate the liability risks of the General Manager.

For further information, you may contact us via email at servicioslegales@bdo.com.pe.


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