The United Bermuda Party is supporting Finance Minister Paula Cox?s new legislation to hold directors and officers of companies personally responsible for arrears in employees? pension and tax deductions to Government ? but a lawyer feels the legislation will eventually be challenged in the courts.

On Monday Ms Cox announced that her Ministry was working with the Attorney General?s chambers on initiatives that include amending business laws to make the heads of businesses liable for unpaid pensions and taxes due to Government and unpaid pension payments.

The legislation will remove the current requirement on Government to prove criminal intent for the missing money, which the Auditor General estimates to be around $52 million.

Government established a task force between the Finance Ministry and the Attorney General?s chambers to reduce the arrears, but concerns have arisen over how to recover funds owed by limited liability companies that go into liquidation.

Companies in liquidation owe more than $6.7 million in payroll taxes and Government pension contributions.

Opposition leader Grant Gibbons said yesterday that the UBP supported any legislation that held directors and officers liable in ?particular circumstances for statutory pension obligations? ? especially if money was deducted from employees salaries for pensions and Government taxes, but the companies then failed to make these contributions to the Government.

But, he said, it was important to see the specifics of any proposed legislation before being able to comment fully.

However, he did say that this was considered theft and using employees pension contributions for company purposes was criminally negligent on the part of the directors and officers.

Mr. Gibbons said Section 236 on Preferential Payments of the current Company?s Act stipulated which payments needed to be made first, including outstanding pensions and tax deductions to Government when a company went into liquidation.

There is also a provision under the Company?s Act, Section 237 Fraudulent Preference which states that should a director or officer of a company ? within six months of the company becoming insolvent ? pay for the delivery of goods or other company matters, knowing that there might be outstanding taxes, this is considered ?essentially illegal?.

He said these, and other Acts which relate to insolvency and fraudulent preference, would need to be looked at to see how they might fit into a proposed legislation.

Dr. Gibbons said a small number of ?seriously delinquent tax offenders? used pension and tax deductions to finance the ongoing operations of the company.

?This was wrong and needs to be addressed more thoroughly,? he said.

As far as limited liability companies are concerned, Dr. Gibbons said the legislation would ?reach through the corporate veil? ? if a limited liability company goes bankrupt, the officers and directors are not liable for pension and tax obligations.

This refers to companies that deducted employees pension and Government tax, but use the money for other company purposes.

Another point to highlight, he said, was the ?out of date? computer software currently used by the tax commissioner which takes up to two quarters to identify companies which are in arrears.

?Provisions have been made to update that software so that the tax commissioner has a much earlier tax report ? something the public accounts committee has been proposing for a few years now,? he said.

Bermuda Chamber of Commerce President Peter Everson, said yesterday that he could not comment on the proposed legislation, but added that the Chamber had made a written submission to the Ministry and requested a meeting with Ms Cox.

Michelle Khaldun from the Small Business Development Corporation said the tax commissioner had agreed to work with small businesses in working out ?payment plans? if they were in arrears ? ?something that is very helpful to people who have fallen behind,? she said.

Lawyer Mark Diel said a ?doctrine of corporate entity? was created about 60 or 70 years ago which determines that companies are separate legal entities.

He said this meant that companies have the same constitutional rights and obligations as people, including the obligation to pay taxes.

?But how can you make a third person liable for another?s taxes?? he asked.

Mr. Diel wanted to know what would happen if the director, for example, had no knowledge that taxes were not being paid.

?Would all his directors be liable??

While Mr. Diel could not comment on pensions, he said in relation to taxes, it was a corporate responsibility and he was not sure how third parties ? directors and officers of companies ? could be liable should the taxes not be paid.

?It will be challenged if and when for example, a director is sued to pay the debts of the company,? he said, adding that it would be interesting to see what would happen in relation to a number of law firms in Bermuda in which lawyers are also directors of companies.

?Sooner or later it will be challenged in the courts,? he said.