La subsidiary liability can affect the financial situation of your business. In the event that this falls on the company or any of its directors, when a third party breaches the terms of an agreement, certain obligations would fall on you, as agreed.
Subsidiary liability is an obligation which is regulated by the Law 58/2003, of 17 December, General Tax Law. The exercise of a person's or entity's right would trigger this liability, as a consequence of an omission by another.
Omission is that which would have occurred when one of the parties to a contract had not complied with what was agreed or in the terms agreed. In that case, and provided that it had been established by legal and valid agreement, the defaulting party should face the obligation.
This obligation can be directly monetary, for example, when the person responsible for paying a debt does not pay it, or of another type, such as in the case of a breach of contract. by the company with respect to the working conditions agreed with the workers.
Apart from the corporate social responsibility or moral or ethical responsibility, in this article we focus on the subsidiary liability. But the administrators of a business can also incur a joint and several liability.
It is quite common to confuse the terms subsidiary liability and joint and several liability.. However, the only thing they have in common is the need to deal with obligations.
In the case of subsidiary liability, we already mentioned that it would not be a directly acquired liability, but rather an indirect one. If the party with an obligation were to default on their part of an agreement, the responsibility would pass to the next liable party, the subsidiary. However, in the case of joint and several liability, things change.
When we talk about joint and several liability, we are referring to an obligation that arises jointly for several individuals. This means that, at the same time, different people or companies undertake to act jointly in the face of a supposed event and can be required to do so, if there is an agreement, contract, or legal precept where this is set out. It is a joint obligation on the same debt.
This is not the norm, however, It could be the case that both responsibilities are present in the same situation. For example, this would be the case if a significant loan were granted to the business, with all its directors being subject to the obligation to meet it as guarantors.
If the principal debtor is unable to assume responsibility, the creditor should turn to the next guarantor, who is subsidiarily liable. However, if payment is not made on the agreed terms, the remaining guarantors could be approached, turning the situation into an example of the application of joint and several liability.
Subsidiary liability is characterised by constituting an obligation that does not arise from a binding agreement between the party who is liable and another party, but rather from a third party and another party; and it requires the default of this third party to become active.
No differentiation of degrees of subsidiary liability, which is something that does happen in joint and several liability. Nor is it an obligation that can be demanded at any time, as it only exists in one case: the event that someone fails to comply with what was exigible from them under contract.
Examples of subsidiary liability that are quite common in the business world would be the case of a company, whose Administrator does not meet their tax obligations, causing an irregular situation that results in a fine. This penalty must be paid by the other Administrators subsidiarily.
Another example is when, within a company, a middle manager commits an irregularity that is reported by an employee. When this happens, the company cannot deny its part of the responsibility in the situation and, therefore, is considered subsidiarily liable.
The obligation arising from subsidiary liability is extinguished at the very moment it is satisfied.
