The German Federal Court of Justice was recently asked to decide whether a waiver in favour of company director had been validated by the preliminary insolvency administrator's consent.
Background
A company – with the approval of its preliminary insolvency administrator – agreed to waive possible manager liability claims against its director, resulting from payments made after the company had become illiquid or over-indebted. After insolvency proceedings commenced, the former preliminary (now final insolvency administrator) asserted the waived manager liability claims against the director, invoking Sec. 64, 9b of the German Limited Liability Companies Act (GmbHG). From 1 January 2021, a similar rule was incorporated in Sec. 15b Insolvency Statute (InsO).
According to these provisions, a company’s waiver of such manager liability claims is invalid if the compensation is necessary to satisfy the company’s creditors. However, this does not apply if:
- the person liable is insolvent and settles with their creditors to avert insolvency proceedings
- the obligation to reimburse or compensate is regulated in an insolvency plan, or
- an insolvency administrator acts on behalf of the company.
The German Federal Court of Justice's decision
On 20 April 2021, in case II ZR 387/18, the German Federal Court of Justice decided that the waiver of the manager liability claims was invalid. The court highlighted that the prohibition of a waiver is only overridden by the opening of insolvency proceedings and not before. One consequence of this decision is that directors may now be less willing to cooperate in the operation of a company in preliminary insolvency proceedings.
Find out more
To discuss any of the issues raised in this article in detail, please reach out to a member of our Restructuring & Insolvency team.
