Conflict of Managing Director’s Duties in Bankruptcy between Wage Tax and Insolvency’s Estate

It is of no question that a GmbH’s managing director is responsible and liable for forwarding wage tax of the company’s employees to the tax office (§34 AO). But what to do when your company is in a bad financial state and you are in the process of evaluating the chances to rescue or to close the company? The BFH set out the rules to solve this problem in its decision of February 27, 2007 (published July 25, 2007, re VII R 67/05).


When a company is so financially bad off that it can only partially come up with the funds to cover the running costs, the three week period, in which the decision must be made if bankruptcy is to be filed or not (§64 I GmbHG), starts. The second part of the problem is that managing director has the duty to calculate and forward wage tax (§41a EStG). The third obligation in this scenario is to secure the insolvency’s estate (§64 Abs. 2 GmbHG). This “safety measure” legally states that the director can be held liable if he makes payments after overindebtedness or bankruptcy. But what if the company’s assets are not sufficient to pay both the salaries and the wage tax in full? What is the managing director’s duty in such case? Does one duty prevail over the other?

In the reported case, the managing director filed for bankruptcy in February 1999. Due to a liquidity crunch, the company did not pay the wage tax – only the salaries for the employees. The tax office held the managing director liable per wage tax liability order (Lohnsteuerhaftungsbescheid) for the tax arrears on the grounds of being a “managing director (Geschäftsführer)” pursuant to §34 AO.

The company’s argument adopted the concept of the Federal Tax Court’s ruling case law on how the company’s obligation re the wage tax is to be construed. The Federal Tax Court argues that the company acts as trustee of the employer and forwards the due taxes to the authority on behalf of the employee. When paying the wage tax, the employer forwards funds of the employee and not its own money. Therefore, the company and its legal representative cannot be held liable.

Following ruling case law of the Federal Tax Court, not transferring wage tax usually infringes at least gross negligently the duties of a managing director. Financial difficulties of the GmbH do not change anything in this duty to pay. In the case that existing assets do not suffice to serve all payments relating to the employee’s salary (including wage tax), the director may only forward both the salary and tax reduced respectively to meet the wage tax duties.

The managing director’s duty to maintain insolvency’s estate does not cause a unlimited collision to completely forward the wage tax and so prevent any kind of fault. A collision only exists during the three weeks after noticing inability to pay or insolvency and only during this period of contemplating to either rescue the company or file for bankruptcy can a responsibility to transfer wage tax be disregarded. Otherwise,  it is reasonable for him to free himself from this conflict by applying for bankruptcy.

Published on the old CMS: 2007/9/18
Read on the old CMS till November 2008: 1,147 reads

Additional information