Directors' liability is a sensitive issue: the law stipulates that directors must exercise the care of a prudent businessman in the company's affairs. A managing director who breaches his duties is liable to the company for the damage caused. D&O insurance can protect him and the company.
Author:
dr Christian Andrelang, LL.M.
Lawyer
Specialist lawyer for international business law Specialist lawyer for commercial and corporate law
Managing director liability: The duties of the managing director
The essential duty of a managing director is to protect the economic advantage of the company. The managing director must promote the interests of the company within the framework of the laws, the partnership agreement and the resolutions binding for the management, i.e. protect the company's possible advantages and prevent or avert damage to it (OLG Zweibrücken, judgment of December 22, 1998 - Ref: 8 U 98/98; OLG Düsseldorf, judgment of November 25, 1993 - Ref: 6 U 245/92), but at the same time comply with the limits set by the legal system. Managing director liability is therefore a real risk that more and more managing directors are exposed to
The managing director's duty therefore includes, in particular, preventing the company from being placed in a worse position in its legal position: Every managing director is particularly obliged to avoid concluding disadvantageous contracts (BGH, judgment of February 21, 2005 - II ZR 112/03, DStR 2005 , 659 - Conclusion of a rental purchase agreement for items that cannot be used by the company). He is also not allowed to allow the company's claims to become statute-barred. He must therefore take appropriate measures in good time to prevent the statute of limitations from occurring (BGH, judgment of December 9, 1991 - Ref: II ZR 43/91 - non-assertion of exemption claims against shareholders; OLG Koblenz, judgment of February 26, 2007 - Ref: 12 U 1597/05 - failure to assert due claims in a timely manner; Cologne Higher Regional Court, judgment of June 29, 2000 - Ref: 18 U 31/00 - failure to take measures to interrupt the statute of limitations with regard to liability claims made by the company against the managing directors themselves). Otherwise, he owes compensation according to the principles of managing director liability
If the managing director does not have his own legal knowledge, he must also seek the advice of a qualified, independent lawyer, such as a specialist lawyer in commercial and corporate law or, in international cases, a specialist lawyer in international business law (KG, judgment of February 24, 2011 - Ref: 19 U 83/10, GmbHR 2011, 477 - Failure to obtain legal advice; BGH, judgment of September 20, 2011 - Ref: II ZR 234/09, BGH ZIP 2011, 2097; OLG Stuttgart, judgment of November 25, 2009 - Ref : 20 U 5/09 NZG 2010, 141 – on lack of legal knowledge). If he wants to avoid liability as a director, he must not rely on his “gut feeling” or his “experience”.
Managing Director Liability: Entrepreneurial Discretion
It should be noted, however, that according to the case law of the BGH (judgment of April 21, 1997 - Ref: II ZR 175/95), every managing director must be granted a wide scope of action, without which entrepreneurial activity is inconceivable. In particular, the managing director is obliged to exhaust all of the company's available sources of information and to carefully determine the basis of his decision. A violation of this can trigger his managing director liability. What is relevant is what information a responsible managing director considers to be relevant to the decision in the specific situation and would therefore obtain. In addition to consciously taking business risks, this scope for action also includes the risk of incorrect judgments and misjudgments to which every company manager is exposed, no matter how responsibly they act. An essential feature of the business decision is the forecast made by the managing director of the future effects of his decision.
However, when claims are threatened with a statute of limitations, the prognosis is usually clear. If no measures are taken to prevent the statute of limitations, claims are no longer enforceable. At best, there may be scope for assessment to consider whether the expected costs are appropriate given the amount of a claim. This applies in particular if objections are raised against the claims or if the opponent is not solvent. However, this will always require obtaining legal advice. But: If the managing director's decision is within the scope of his discretion, there is no room for managing director liability, even if the company suffers damage.
Managing director liability: Also in GmbH & Co. KG
According to its wording, Section 43 GmbHG only covers GmbH managing directors. However, according to the case law of the BGH, Section 43 GmbHG applies accordingly to managing director liability in GmbH & Co. KG. The BGH (BGH, judgment of June 18, 2013 - Ref: II ZR 86/11, ZIP 2013, 1712; BGH, judgment of February 25, 2002 - Ref: II ZR 236/00, ZIP 2002, 984; BGH , judgment of March 24, 1980 - Az: II ZR 213/77, NJW 1980, 1524; BGH, judgment of November 12, 1979 - Az: II ZR 174/77, NJW 1980, 589) has the protective effect of § 43 GmbHG for the GmbH & Co KG and thus a direct claim of the KG against the managing director of its personally liable GmbH is recognized. According to this case law of the BGH, the prerequisite is that the sole or essential task of the general partner GmbH is to manage the business of the KG.
Managing director liability: D&O insurance
Directors & officers insurance, or D&O insurance for short, covers damage caused by a company's bodies, in particular managing directors and board members, through their breach of duty. However, the company usually does not receive a direct claim against the D&O insurance, but must first take personal action against the managing director, if necessary even in court. According to the claims made principle, the company must therefore take serious action against the managing director because of his managing director liability, but there is no obligation to intervene.
Managing director liability – what is important?
As a director, you should be aware of your obligations and your liability risk. Claims of the company against third parties or against the shareholders must be asserted. Business discretion can protect you, but it must be exercised correctly. Violations of this can lead to managing director liability. Some breaches of duty not only trigger liability for the managing director, but can also have criminal consequences, for example due to breach of trust, fraud or late filing of an application for insolvency. Find out exactly what your duties entail.
As a GmbH or GmbH & Co. KG, you have a claim for damages against your managing director in the event of breaches of duty. You should therefore check whether you take out D&O insurance that covers your claims against the managing director, who may not be able to pay compensation from his own resources. Keep in mind that D&O insurance may not cover all breaches of duty.
