Rising social security contributions and the liability of the managing director: managing directors must pay attention to these points in the event of insolvency
The increase in social security contributions at the turn of the year was intended to reduce the financial bottlenecks in health and long-term care insurance. However, not only health and long-term care insurance are affected by financial challenges, but also many other companies that have not yet fully recovered from the economic losses caused by the coronavirus pandemic. They are threatened with possible insolvency due to rising costs and social security contributions. Managing directors must consider the potential liability risks, especially in the event of the company’s insolvency, warns lawyer Sascha C. Fürstenow.
Managing director liability in connection with taxes and social security contributions
Briefly explained: The managing director is obliged to act like an employer. They must pay income tax and social security contributions and pay social security contributions. If he fails to do so, he could not only be obliged under civil law to pay damages in accordance with the German Civil Code, but the non-payment of social security contributions could also be considered a criminal offense under the German Criminal Code.
Liability risks after insolvency maturity
According to the Insolvency Code, managing directors are generally liable for payments made by the company after it has become insolvent. If the insolvent company pays out an outstanding liability, the managing director may also be personally liable to the insolvency administrator for the payments made by the company. The amount of the contributions can often threaten the existence of the managing directors.
Due to case law, managing directors find themselves at an impasse when it comes to paying social security contributions: on the one hand, failure to pay taxes and social security contributions constitutes a criminal offense, while on the other hand, the managing director is no longer permitted to make payments or have payments made in accordance with the Insolvency Code.
The managing director not only faces criminal proceedings for non-payment of social security contributions, but also misdemeanor proceedings for non-payment of taxes. Accordingly, he is not liable under tax law if the payments are not made but an application for insolvency has been filed in good time, according to a ruling by the Ludwigshafen Local Court. In this way, “at least” a tax-law solution was created for the managing directors. However, according to the local court’s ruling from 2022, this exception does not apply to social security contributions, as these do not constitute taxes, explains lawyer Fürstenow.
Conclusion: Awareness of the personal liability of managing directors
In summary, it can be said that the managing director must be aware of his personal liability in the event of insolvency. The managing director is obliged to pay social security contributions despite being insolvent.
In the event that a company has to file for insolvency or is on the way to such a situation, lawyer Fürstenow recommends seeking legal advice as early as possible in order to avoid the liability risks and criminal consequences of non-payment. In addition, legal advice can help to find measures and solutions to protect against personal liability or to limit liability, e.g. by filing for insolvency immediately if insolvency or over-indebtedness has been established.