OLG of Düsseldorf: Managing director responsible for orderly payment of social security contributions
September 2, 2015 Leave a comment
http://www.grprainer.com/en/legal-advice/company-law/directors-liability.html In its ruling of September 16, 2014 (I-21 U 38/14), the OLG of Düsseldorf clarified that the managing director of a GmbH (Gesellschaft mit beschränkter Haftung) [German limited liability company] is responsible for the orderly payment of social security contributions.
GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London conclude: One of a GmbH managing director’s tasks is to ensure the orderly payment of social security contributions for employees. If social security contributions are withheld, then the managing director is liable to pay compensation.
The fact that the payment of social security contributions within the company may be organised differently or delegated to employees does not absolve the managing director from this responsibility. This has been confirmed by the ruling of the OLG Düsseldorf (I-21 U 38/14). The Twenty-First Civil Chamber of the OLG clarified that the managing director of a GmbH is still responsible for the orderly payment of social security contributions by virtue of his position within the company and the general competence conferred on him by law if this task has been assigned otherwise. The Court stated that under such circumstances the managing director would still need to fulfil his supervisory obligation. Should evidence emerge suggesting the task is not being carried out correctly, the managing director has to intervene.
This particularly applies in the event of an obvious financial crisis within a company. The OLG Düsseldorf went on to state that the managing director would then be obligated to make sure that payment obligations are met, which would entail him personally examining whether the contributions have in fact been disbursed.
It is especially important in times of crisis that measures be taken to ensure that employee contributions to social security are also paid. If necessary, this would require the deferral of other payments or even a reduction in wages.
The case demonstrates that executive bodies and managing directors alike can easily find themselves subject to personal liability in crisis situations. They are essentially tasked with managing the business for the benefit of the company. If in doing so they breach their obligations, which include, inter alia, ensuring the orderly payment of social security contributions, they may be faced with damages claims arising from within the company (internal liability) as well as those raised by third parties (external liability).
That being said, it is also possible for the managing director’s liability risk to be reduced by way of a contract, which is why lawyers who are experienced in the field of company law ought to be consulted when drafting contracts.