ENTREPRENEURS IN THE ALLOWANCE AFFAIR: CYRIL SPIERTZ SEES FLAWS IN DEALING WITH DEBTS
Cancelling the business debts of the victims of the benefits affair: why state aid? Reflection
Lawyer (ASP)/founder Spiertz Advocaten
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September 26, 2022
Introduction
An important part of the childcare allowance recovery operation is the debt approach. Affected parents have often incurred private and public debts unexpectedly, as a result of the (unjustified) recoveries from the Tax Administration/Allowances and/or the (unfairly) termination of the childcare allowance. The purpose of the debt approach is that affected parents can make a fresh start “with a clean slate “and do not have to use the compensation payments received to pay off outstanding debts.
In short, the public debts of affected parents are forgiven as much as possible by a number of cooperating government agencies and the private debts of affected parents are paid off/taken over by the government as much as possible. Of course, a number of conditions apply. More information about this can be found on the website of the tax authorities: https://services.belastingdienst.nl/toeslagen-herstel/verder-zonder-schulden/
But what exactly about the possible business debts of affected parents?
Business debts
The owner of a sole trader (including freelancers and freelancers), the partners of a company under firm (vof), the (managing) partners of a limited partnership (resume) and the partners of a partnership are personally liable for the company's debts, i.e. with their (private) assets. In the case of a sole trader, there is also (legally) no distinction between private and business assets and private creditors are also entitled to money or property from the company.
Affected parents with their own unincorporated business, as mentioned above, have run into financial problems in various ways as a result of the benefits affair in business terms. For example, due to forced private withdrawals from the company's assets in order to pay the (unjustified) recoveries from the Tax Authority/Surcharges. Or by recourse from the Tax Administration/Allowances on the entire assets of the owner of a sole proprietorship. In both cases, existing business debts could no longer be repaid, or new business debts unexpectedly arose. The business creditors were then able to recover from the debtor's (private) assets, causing personal damage to affected parents.
A recent letter to parliament from the Secretary of State for Finance addresses a number of concerns that have emerged from discussions with the Parent Panel on Childcare Allowance (letter dated 13 September 2022, Parliamentary File 31 066, No. 1110). This also includes the topic of business damage:
“Question 3
How is business damage suffered dealt with and its assessment? Is that provided?
Answer 3
If a parent has suffered personal damage as a result of the events with the childcare allowance in the course of their business, this constitutes material damage that qualifies for compensation for actual damage suffered. When assessing business debts, the public creditors and SBN should jointly not cancel or take over more business debts than is allowed for that parent under European state aid rules. If the total of business debts that can be reimbursed in the recovery operation exceeds the De minimis limit of €200,000, it will be discussed with the parent which debts will and will not be waived or taken over. Other business debts remain outstanding. When dealing with business debts in the event of bankruptcy, the aim is to reach the best possible settlement in good consultation with the trustee in favor of the affected parent. In the vast majority of cases, it is possible to settle the bankruptcy together with the trustee in such a way that the amount of the compensation provided can be paid out in full or almost in full to the parent and a fresh start is made possible (see also the explanation in the 10th and 11th VGR under chapter 3).”
This explanation is in line with the information about business debts that can be found on the VNG website (the VNG supports municipalities in recovering childcare allowance):
https://vng.nl/artikelen/vraag-en-antwoorden-hersteloperatie-kinderopvangtoeslag#Zakelijkeschulden
In view of the first sentence of the Secretary of State's response, we can therefore assume that personal damage as a result of business debts related to the actions of the Tax Administration/Surcharges (see previous examples!) is eligible for compensation under the recovery arrangements and that this damage can be brought before the Actual Damage Commission.
What's amazing, however, is that cancelling business debts is subsequently linked to providing state aid. As if the government here is providing completely voluntary support measures to the affected parents!
The childcare allowance recovery operation is of course intended to harm to compensate that has arisen at the hands of the government as much as possible. Part of this is the cancellation of business debts by public creditors. It is difficult to understand that the government is limited by European state aid rules (which are incorporated into national legislation). Because what exactly is the legal basis for the recovery operation?
In fact, we only have two flavors in the Netherlands: compensation for the injured party in case of wrongful government acts (civil law) and disadvantage compensation for the person who has been disproportionately affected by rightful government acts (administrative law). Both compensation and disadvantage compensation result from a government legal obligation under the law and general principles of law. According to established case law, there is no state aid in that case.
However, the recovery operation and associated regulations are in a legal twilight zone, where the government stays away from the legal essence of the matter as much as possible, namely the (un) legality of government action in the benefits affair. This determines how victims should be compensated.
In many cases, the government has committed a wrongful act against affected parents. In the event of tort, the rules of civil compensation law apply. In addition, the starting point is that the actual damage must be fully reimbursed. As far as possible, the injured party should be placed in the financial position that would have existed if no wrongful act had been committed. Compensation may take place in a way other than in cash. In that context, cancelling or paying off business debts by way of compensation is in no way related to the rules of state aid.
As long as the wrongfulness is not recognized by the government or determined by the court (in an individual case), affected parents are dependent on the inadequate recovery arrangements set up by the government. We can therefore not avoid looking at how the state aid rules relate to the childcare allowance recovery schemes.
State aid
The criteria for State aid are set out in Article 107 of the Treaty on the Functioning of the European Union (TFEU). In short, State aid (in cash or other form) to certain companies that distort or threaten to distort competition is prohibited, in so far as it affects trade between Member States.
The European Commission is the only competent authority that can (ex ante) assess whether there is state aid. The ban on state aid is subject to a number of exemptions and exceptions. One of these is set out in the so-called de minimis regulation (Regulation (EU) No. 1407/2013): aid measures to companies in the form of small amounts (up to €200,000 over a period of three tax years) are allowed and are not considered State aid. Under this regulation, the government says it can cancel up to €200,000 in corporate, public debts of affected parents without violating the ban on state aid.
Given the background of cancelling the corporate debts of affected parents, compared to the criteria for state aid, it is hard to imagine that this cancellation of debts can actually be classified as state aid. It would therefore be appropriate for the government to investigate whether the remission measures (also above €200,000) can be formally excluded from the ban on state aid, if necessary by submitting the measures to the European Commission for review.
The exception set out in Article 108 (2) TFEU may even apply, although it should be interpreted restrictively: aid measures to repair the damage caused by natural disasters or other extraordinary events are allowed. On that basis, certain support measures were also allowed in the context of the corona crisis. The benefits affair can now also be seen as an extraordinary event. Let's hope it remains an “extraordinary” event.
Enough to think about as a victim!
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