26. Sep 16

BGH: Liability of managing director in case of unpaid social security contributions

The managing director is responsible for ensuring proper payment of social security contributions. If these are not paid, he could potentially be personally liable for this.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London conclude: A managing director who breaches his duties may be faced with personal liability. Such duties include making sure that contributions to social security are properly paid. If this does not happen, he may be liable to pay damages to the relevant social security institutions. That being said, the social security institution has to prove intent on the part of the managing director. This also applies should there be no doubt regarding whether the conduct complained of objectively represents a breach of duty. That was the verdict of the Bundesgerichtshof (BGH), Germany’s Federal Court of Justice, in its ruling of May 3, 2016 (Az.: II ZR 311/14).

In the instant case, the defendant had been appointed as managing director in September 2002 and registered as such in the commercial register. There was nevertheless uncertainty concerning whether the defendant was fully aware in the first place of his appointment as managing director and the resulting obligations due to language difficulties.

It was also demonstrated that in September 2002 the GmbH had made extensive use of undocumented workers. The respective social security institution raised a claim against the managing director for withholding contributions to social security. The BGH held that a negligent breach of duty on the part of the managing director was not sufficient to render him liable but rather intent needed to be proven. The Court stated that intent cannot be readily inferred from an established breach of duty. It went on to say that the plaintiff bore the burden of proof for demonstrating intent, whereas the managing director merely bore the secondary burden of producing evidence.

The managing director of a corporation is not initially liable with his private assets. However, in the event he commits breaches of his duties, personal liability becomes a possibility both in relation to the internal relationship with the company and the external relationship vis-à-vis third parties. These duties include economic and financial management of the company, timely filing for insolvency in the case of imminent bankruptcy as well as ensuring proper payment of taxes and social security contributions. Liability always requires the managing director to have acted with intent or at least negligently.

Lawyers who are versed in the field of company law can offer advice to companies and / or managing directors with a view to preventing breaches of duty from occurring and enforcing or fending off claims.

For more informations:

https://www.grprainer.com/en/legal-advice/company-law.html

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