BGH on liability of managing directors if social security contributions not paid
The managing director of a GmbH, a type of German private limited company, is responsible for ensuring proper payment of social security contributions. Failure to fulfil his duties can render him personally liable.
GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London conclude: While a managing director of a GmbH is not initially liable with his private assets, he may nonetheless be personally liable if he breaches his duties. A managing director”s duties include, among other things, ensuring that contributions to social security are properly paid. However, a breach of duty always presupposes fault on the part of the managing director, i.e. he must have acted deliberately or negligently.
If the social security contributions for the workers of a GmbH are not properly paid, the managing director may be personally liable for this. Having said that, a ruling of the Bundesgerichtshof (BGH), Germany”s Federal Supreme Court, from May 3, 2016 shows that the social security agencies would then also have to be able to demonstrate intent on the part of the managing director (Az.: II ZR 311/14). The 2nd Civil Panel of the BGH held that a social security agency bringing a claim against a managing director of a GmbH for withholding contributions to social security also needs to be able to prove that the managing director acted with intent. The Court went on to say that this also applies if the managing director”s breach of duty has been objectively established, as intention cannot be automatically inferred from this. The managing director was said to merely bear the secondary burden of producing evidence.
If the managing director entrusts the task of paying social security contributions to other employees, he must nevertheless take action pursuant to his monitoring obligations if there are any indications that the contributions are not being paid correctly.
The managing directors of a GmbH need to realize that they not only bear a high level of responsibility vis-à-vis the company and its employees, but are also exposed to a considerable risk of liability. To reduce this risk, appropriate measures ought to be taken.
Lawyers who are competent in the field of company law can advise on matters ranging from drafting agreements through to taking out D&O insurance policies as well as when the question of liability arises, and take appropriate legal measures to reduce the risk of personal liability and assist in fending off claims in the event that they are raised.
GRP Rainer LLP www.grprainer.com/en/ is an international firm of lawyers and tax advisors who are specialists in commercial law. The firm counsels commercial and industrial companies and corporations, as well as associations, small- and mid-sized businesses, self-employed freelancers and private individuals worldwide from offices Cologne, Berlin, Bonn, Dusseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London UK.