Directors’ Duties in Germany

>> Liabilities and Penalties in Germany

If a managing director negligently or intentionally violates his duties he is liable to the company for damages, jointly and severally with any other managing director who is also in breach of their duties. A managing director can be held liable for payments made by the company after overindebtedness was ascertained or illiquidity arose, particularly where those payments would not have been made by a diligent and prudent businessman. In exceptional cases, the managing directors can also be liable directly vis-à-vis the shareholders or third parties.

In several cases, misconduct of a managing director can lead to criminal liabilities, eg in case of:

  • reporting false information to the commercial register
  • failure to inform the shareholders of losses amount to half of the registered capital
  • divulging of business secrets
  • failure to comply with bookkeeping and accounting obligations
  • failure to file for insolvency when required by law
  • generating the insolvency of the company, causing a delay in filing for insolvency or preferential treatment towards certain creditors and/or debtors

Limitation of liability

In principle, the managing director cannot be held liable if the actions undertaken by him were approved by a shareholder resolution, unless such actions are illegal. In such case the managing director is obliged to ignore any instructions received by the shareholders.

A shareholder resolution can grant full discharge thereby releasing a managing director from his liability to the extent that the shareholders are or could have been aware of the facts that would have led to a claim of the company against the managing director. This does not apply to criminal offences or liabilities resulting from gross negligence or wilful misconduct.

Please note, vis-à-vis third parties the liabilities of a managing director cannot be limited.

Delegation of authorities

Several authorities of a managing director can be delegated to holders of a special proxy or authorized representatives. Nevertheless, the managing directors remain responsible for observing their obligations and can, hence, be liable for the actions of their delegates.

Directors and officers (“D&O”) insurance

D&O insurance can be obtained against the liabilities of the managing director, vis-à-vis the company. Under German law, third parties generally do not have a direct claim against the managing director, only the company. The cases where a third party may have a direct claim against the company are not generally covered by D&O insurance.

Please note that the D&O insurance does not protect the managing director against his criminal liabilities.

Latest version updated 22nd March 2018

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