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Administrative sanction 18 august 2015
The financial robustness of the parent company can, under circumstances, be a factor in the determination of the financial capacity when setting the amount of the administrative penalty to be imposed on the subsidiary. This follows from a recent verdict of the Administrative Court of the Council of State.
In the Netherlands, an administrative punitive sanction can be imposed in the case of violation of, amongst others, the Working Conditions Act, the Decree on the Prevention of Major Accidents, the Working Hours Act, the Commodities Act and the Foreign Workers (Employment) Act. Such punitive sanction can be imposed by the Minister of Social Affairs and Employment. The legal framework has the character of both administrative law and punitive law.
An administrative punitive sanction is imposed on the one who has perpetrated the law. The amount must be proportional to the seriousness of the violation and the degree to which the perpetrator can be reproached. The circumstances under which the violation has taken place must be taken into account. A hardship clause softens the consequences in the case of a statutory fixed sanction if the perpetrator can demonstrate that the fixed sanction is too high in view of special circumstances.
In a legal structure with one or more subsidiaries and a holding company, it is mostly the subsidiary that conducts the activities. The subsidiary usually has the contracts, the real estate, the installations and the personnel. The holding company usually only manages the profits and conducts no other activities. Next to tax considerations, the legal structure is often based on considerations related to the prevention of liability.
Ring fencing does not seem to work under all circumstances, as follows from a verdict of the Administrative Court of the Council of State of 8 July 2015, in a case in which the subsidiary acted in violation of the Foreign Workers (Employment) Act. In this case, the Inspectorate of the Ministry of Social Affairs and Employment established that a number of foreigners of Chinese nationality had performed promotional work on behalf of a subsidiary without the required permit. According to an earlier judgment of the Administrative Court of the Council of State, it is the responsibility of the employer to ensure that the requirements of this Act are fulfilled prior to commencement of the work.
The employer (the subsidiary company) pointed out its poor financial circumstances and stated that the statutory penalty should be replaced by a warning or, at least, be limited to a symbolic penalty. The principle of proportionality requires the Minister to limit the administrative penalty if it would be disproportionate in relation to the financial situation of the employer. According to the District Court, the financial situation of the subsidiary was reason to cut the penalty back by 50%. The fact that the subsidiary and the parent company form a fiscal unity, according to the District Court, would not mean that the subsidiary would not be disproportionally affected. The construction, according to the court, would not mean that the subsidiary and the parent company would be liable for each other’s payment obligations, and would not lead to the conclusion that there is a financial entanglement to the extent that such should be the case. Furthermore, the court was of the opinion that there was no misuse of a holding construction.
The Minister of Social Affairs and Employment did not see any reason to mitigate the statutory penalty, partly because he deemed the financial position of the parent company relevant. The Minister pointed out the economic ties between the subsidiary and the parent company to the effect that the subsidiary company was not an autonomous entity. Given that the parent company had sufficient funds it could, according to the Minister, pay the statutory penalty of EUR 90,000 (for its subsidiary).
The Administrative Court of the Council of State concurred with the Minister and ruled against the employer. According to the Administrative Court, the financial situation of the parent company can be taken into account in the determination of the financial strength of the perpetrating subsidiary. Factors taken into consideration by the Administrative Court were that the parent company was the sole shareholder and director of the subsidiary, that it employed no personnel and that it simply engaged in holding activities. Furthermore, the Administrative Court deemed it of specific importance that there was a current account overdraft facility between the parent company and the subsidiary. According to the Administrative Court, the parent and the subsidiary could in fact be regarded as one entity on the basis of which, the financial situation of the parent company can be taken into account in the determination of the amount of the punitive (financial) penalty that was to be imposed on the subsidiary.
The question is whether this would be different if the holding company did have personnel, other activities and if there were no overdraft facility between the parent company and the subsidiary. Under the same circumstances, a piercing of the corporate veil would not readily be applied in civil law outside of bankruptcy. Of course, this case is not a matter of piercing the corporate veil, but it will naturally also have an indirect effect on the financial position of the parent company. It seems advisable not to just look at the tax and civil liability aspects, but also at the aspects following from administrative sanctions law when setting up a corporate structure.
Seveso industries 18 august 2015
Revision PGS15 18 august 2015
Comments on PGS15 12 august 2015
illegal waste conciliator 06 may 2015
Seveso III Directive 1 June 10 april 2015
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