Dear Attorney,

I hope this letter finds you well. I am writing to seek your professional advice regarding a matter related to the settlement of obligations for delayed Social Security System (SSS) contributions by a corporation. The company has already remitted the required contributions and has drawn an agreement with the SSS to address any remaining delayed contributions.

With this in mind, I would like to know: are the incorporators of the company still liable to face legal action or court proceedings despite the settlement and agreement with the SSS?

Your guidance on this matter would be greatly appreciated.

Sincerely,
A Concerned Corporate Representative

Legal Article: Incorporator Liability for Delayed SSS Contributions

The issue of delayed remittance of Social Security System (SSS) contributions and the corresponding liabilities of a corporation's incorporators is a matter of significant concern for businesses in the Philippines. This article comprehensively examines the legal framework governing SSS contributions, the potential liabilities of corporate officers and incorporators, and the implications of remedial actions such as settlements and payment agreements with the SSS.

1. The Obligation to Remit SSS Contributions

Under the Social Security Act of 2018 (Republic Act No. 11199), employers are mandated to deduct the appropriate SSS contributions from their employees' salaries and remit these amounts, along with the employer's share, to the SSS. Failure to remit contributions on time exposes the employer to penalties, including fines, surcharges, and potential criminal liability.

2. Liability of the Corporation

A corporation, as a juridical entity, bears the primary obligation to comply with labor and social welfare laws, including the timely remittance of SSS contributions. As the employer of record, the corporation itself is subject to administrative and civil sanctions for any non-compliance.

3. Individual Liability of Corporate Officers and Incorporators

Incorporators of a corporation, by default, are not personally liable for the obligations of the corporation due to the principle of separate juridical personality. However, this protection is not absolute. Philippine jurisprudence and statutory provisions allow for the lifting of the corporate veil in specific circumstances, which may result in the personal liability of corporate officers, directors, or even incorporators. These instances include:

Willful Failure to Remit Contributions: Under Section 28(f) of the Social Security Act of 2018, an officer or employee of a corporation who willfully fails to remit SSS contributions may be held personally liable. This provision effectively pierces the corporate veil to penalize individuals responsible for the violation.
Fraudulent Acts or Gross Negligence: If the delayed remittance arises from fraudulent activities, gross negligence, or abuse of authority by corporate officers, courts may hold those individuals personally liable.
Breach of Fiduciary Duties: Directors and officers owe fiduciary duties to the corporation and its stakeholders. Failure to ensure compliance with SSS obligations could constitute a breach, potentially exposing them to liability.

4. Settlement and Payment Agreements with the SSS

The SSS permits employers to settle delayed contributions through payment arrangements, subject to terms and conditions stipulated by the agency. Such settlements typically include:

Waiver of Penalties: The SSS may waive or reduce penalties upon the employer’s compliance with the settlement terms.
Installment Plans: Employers may pay arrears in installments under mutually agreed terms.
Full and Final Settlement: Once the agreed amount is paid, the SSS issues a certification of compliance, effectively closing the case.

5. Legal Consequences Despite Settlement

Despite the settlement of obligations, individual liability of incorporators or officers could still arise under specific conditions:

Pending Criminal Proceedings: Settlement with the SSS generally addresses administrative and civil liabilities but does not automatically extinguish criminal liability. Prosecutors may pursue criminal charges against individuals for willful violations, especially if there is evidence of fraud or malice.
Post-Settlement Audits: If discrepancies are discovered during subsequent audits, or if other violations come to light, incorporators or officers may still face legal repercussions.

6. Remedies and Legal Defenses

Incorporators and corporate officers can avail themselves of the following defenses to avoid personal liability:

Proof of Good Faith: Demonstrating that delays in remittances were unintentional and occurred despite reasonable efforts to comply can mitigate liability.
Delegation of Responsibility: If the responsibility for remittances was delegated to specific officers (e.g., the HR or finance department), incorporators may argue that they were not directly accountable.
Full Compliance: Settlement with the SSS and issuance of a compliance certification can serve as evidence of good faith and proactive resolution.

7. Relevant Jurisprudence

Several Philippine cases provide guidance on the liability of corporate officers and incorporators:

SSS v. Moonwalk Development Corporation (G.R. No. 162241): The Supreme Court held that a corporation’s officers could be held criminally liable for non-remittance of SSS contributions if the failure was willful.
People v. Moy Ya Lim Yao (G.R. No. L-27621): This case established that corporate officers who directly participated in or sanctioned illegal acts could be held personally liable.

8. Practical Recommendations

To mitigate risks, incorporators and corporate officers should adopt the following measures:

Ensure Timely Compliance: Regularly remit SSS contributions and keep detailed records of payments.
Conduct Internal Audits: Periodically review payroll and compliance processes to identify and address potential lapses.
Engage Legal Counsel: Consult with legal experts to understand obligations and develop strategies for compliance.
Negotiate with the SSS: In case of arrears, proactively engage with the SSS to negotiate settlements and avoid escalation to legal proceedings.

Conclusion

The settlement of obligations for delayed SSS contributions and agreements with the SSS significantly reduces the risk of administrative and civil liabilities for a corporation. However, the potential for individual liability of incorporators or officers depends on the circumstances surrounding the delay and the presence of willful violations or fraudulent conduct. By adopting proactive compliance measures and seeking legal guidance, corporate stakeholders can minimize their exposure to legal risks.

This comprehensive discussion should clarify the intricacies of incorporator liability in cases of delayed SSS contributions. For further advice tailored to your specific situation, please consult a legal professional specializing in labor and corporate law.