Germany legal update: directors' liability for making payments to a company's bank account with negative balance during insolvency

Federal Court of Justice (BGH), 11. February 2020 – I

According to German law, managing directors of limited liability companies are personally liable for payments made despite insolvency. Directors may even be liable when third parties make payments to the insolvent company's current account that has a negative balance because such payment will constitute a payment by the insolvent company to the bank.

As previously reported, the Higher Regional Court of Hamburg (OLG Hamburg) recently held that the managing director is not liable if an advance payment is made to an account with a negative balance. The OLG Hamburg stated that the third party would not have effected such payment at all, if the managing director has redirected the payment to another bank account held in credit. On appeal, the BGH has set aside this decision. 

The BGH held that the managing director acted against his duties. This remains the conclusion even if the third parties would not otherwise have made the advance payment at all. The BGH argues that it is sufficient that the company who has a claim against a third party waives its claim in favour of the bank. 

Another interesting aspect of the BGH's decision is that it clarifies the relationship between the clawback claims against the bank and the liability of the managing director. This relationship was previously unclear. In principle, a managing director is not liable for a payment made despite insolvency when the insolvency administrator can recover the same payment by assertion of clawback claims. However, in the event of insolvency avoidance, for a current account, the bank is only obliged to reimburse the difference between the balance at the start date of the avoidance period and the start date of the insolvency proceedings. By contrast, the managing director is liable for every single payment. The BGH has also decided that the amount obtained out of asserting clawback claims against the bank has to be distributed among the individual payments on a pro-rata basis.

The ruling shows, once again, that the provisions on liability for payments made during insolvency are complex and uncertain. Every managing director should redirect payments to accounts held in credit if the company is illiquid.