Decision of the Administrative Court of Baden-Württemberg – Ref. 2 S 1297/24
One advantage of the GmbH is limited liability. However, this may be different if the managing director breaches his tax obligations. In such cases, he can also be held personally liable, as demonstrated by a decision of the Administrative Court of Baden-Württemberg dated 10.10.2024 (Ref. 2 S 1297/24).
Managing directors must perform their duties with the diligence of a prudent businessman and conscientious manager. Their duties include, among other things, the proper payment of taxes and social security contributions. If the managing director violates his duties and fails to exercise the necessary care, he can be held liable with his personal assets, both internally towards the company and externally towards third parties. This includes liability for the company’s tax debts, explains the commercial law firm MTR Legal Rechtsanwalt, which advises on both corporate and tax law.
Personal liability of the managing director
The Administrative Court of Baden-Württemberg confirmed the personal liability of a managing director for the company’s tax debts. It emphasized that it is among the duties of a managing director to manage the GmbH’s finances in such a way that taxes, in this case trade tax, can be paid on time.
The underlying case concerned the personal liability of a former managing director of a GmbH. The company owed approximately 41,500 euros in trade tax to a municipality. These debts had arisen during the plaintiff’s tenure as managing director. After he left the management, the city personally held him liable with a liability notice in accordance with § 69 AO.
The former managing director and plaintiff objected to this. He argued that the claims had only become due after his term of office had ended. Since he no longer had any influence over the company at that time, he could not be held liable for the tax debts.
Liability after leaving the company
However, he was not successful with this argument. The Administrative Court of Baden-Württemberg affirmed the personal liability of the former managing director for the outstanding taxes. The court referred in particular to § 69 of the Fiscal Code (AO), which allows for the personal liability of legal representatives of legal entities for tax debts if these could not be collected or collected on time due to intentional or grossly negligent breaches of duty.
The court further explained that a managing director can still be held liable for obligations even after leaving the company. However, the prerequisite is that the liabilities stem from breaches of duty during his active period as managing director. In the present case, the managing director had breached his duty to make provisions for funds. Although the GmbH initially earned sufficient profits, he failed to set aside reserves for future tax obligations. Instead, he redirected incoming payments to other accounts and concealed business income from the tax office.
Reserves for taxes
The former managing director was also unsuccessful with the argument that the GmbH was already insolvent at the time the taxes became due. It had been his duty to set aside reserves for the tax payments so that they could be paid on time. The basis for liability is not only met if the damage occurs during the period of office, but also if the breach occurred during that period and its consequences only became evident later, the court further clarified.
The decision shows that managing directors have extensive duties. These include the proper payment of taxes and social security contributions. The liability of the managing director for breaches of duty can still exist even after he has left the company.
Minimize personal liability risks
In order to minimize their personal liability risk, managing directors should always have an overview of the company’s financial situation in order to identify potential payment difficulties at an early stage. They should also ensure the timely payment of taxes and social security contributions. Comprehensive documentation of all financial decisions is also important, especially in times of crisis. This includes, for example, records of liquidity reviews, agreements with tax advisors or banks, and evidence of measures taken. Detailed documentation can be decisive in the event of a dispute, such as upon receipt of a liability notice. Even after stepping down, the economic situation of the company should be documented.
MTR Legal Rechtsanwalt advises on criminal tax law and other topics related to tax law.
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