Cart is empty 
Background
In terms of the company law, limited companies are legal personas separate from the natural persons who create them. This means they can be owed or owe, sue or be sued in their personal capacities. In so far as the claim is made against a company the shareholder or director’s loss is limited to his /her capital contribution. Creditors cannot therefore attach personal assets of the director or shareholder unless the creditor has suffered the loss through fraud or act of misrepresentation of the shareholder or director. The law therefore allows the piercing of the corporate veil thereby empowering the creditor to attach personal property of the shareholder or director. The Income Tax Act recently upheld this principle so as to protect the fiscus from prejudice by unscrupulous business people. The new law provides that if a company or entity (the old company) is wound up voluntarily, and in circumstances that give rise to a reasonable suspicion that it was deliberately put into liquidation to avoid any tax liability, the directors of the old company shall be jointly and severally liable for the amount of any tax due and payable by the old company.
Law and Interpretation
The Income Tax Act [Chapter 23:06] has been amended by the insertion of a new provision which reads: “If, in Zimbabwe or in its country of formation, incorporation or registration, a company or entity (“the old company or entity”) is wound up voluntarily, and in circumstances that give rise to a reasonable suspicion that it was deliberately put into liquidation to avoid any tax liability, and— (a) the directors (or other persons acting in a similar capacity) of the old company or entity (or any of them)— (i) incorporate or register another company or other entity (hereinafter called the “new company or entity”) that carries out substantially the same business as the old company; or (ii) operate as sole traders, whether individually or collectively, carrying on substantially the same business as the old company or entity; or (b) the whole or a substantial part of its business and property wherever situated is transferred to another company or entity which will be or has been formed, incorporated or registered under any law; the directors of the old company or entity (whether or not any of them become directors of or act in a similar capacity in relation to the new company or entity) shall be jointly and severally liable for the amount of any tax due and payable by the old company or entity.”. This piece of legislation came on the backdrop of a realisation by the authorities that some directors would, as a way of ‘walking out’ of their stinking tax debts resolve to voluntarily liquidate a company and form a new one and get off the hook. It is this cheap escape route that the authorities sought to close and protect the fiscus. The directors’ personal bank accounts can be garnished or personal assets attached to settle the company’s debts.
The Company Law perspective
There had been mixed reactions amongst taxpayers as to the interpretation of this new law, with some suggesting that this law is out of sync with corporate law principles of separate legal persona and therefore this law should be a nullity. It is important to note that the Companies Act (Chapter 24:03) provides for prosecution of directors of a company under liquidation of judicial management where it can be established that they have engaged in acts bordering on criminality. Section 319 of the Companies Act reads: “Prosecution of delinquent directors and others: If it appears in the course of the winding up or judicial management of a company that any past or present officer or member of the company has been guilty of an offence for which he is criminally responsible under this Act or, in relation to the company or the creditors of the company, under the common law, the liquidator or judicial manager shall cause all the facts known to him which appear to constitute the offence to be laid before the Prosecutor-General.” Thus directors can be personally prosecuted if they engage in activities of a criminal nature leading to the demise of a company. Hence the tax law has borrowed the concept of piercing the corporate veil and hold directors personally liable for defunct companies’ taxes.
Decision Impact
Directors of a defunct company are warned that they can now be held personally liable for the taxes of the company if the company is wound up voluntarily, and in circumstances that give rise to a reasonable suspicion that it was deliberately done to avoid any tax liability. They cannot form new companies with the hope of running away from tax debts of their old companies. Meanwhile the government through the new monetary policy as pronounced through SI33 of 2019 has provided for the conversion of United States Dollars balances of assets and liabilities as at 22 February 2019 to RTGS$ on a 1:1 basis implies the government has involuntary given tax amnesty to those with outstanding tax liabilities as at that date. Directors or taxpayers with outstanding tax debts can therefore order their affairs and pay their tax debts or enter into tax payment plan with the ZIMRA to settle such debts because they have been devalued.