German court extends the liability of managing directors

Quick read

The German Federal Court of Justice (Bundesgerichtshof) has extended the liability of managing directors to damages that arise after they have left office.

Background

Under German law, the managing directors of an insolvent company must file for insolvency with the court in due time. Failure to do so can result in personal liability not only to the insolvent company but also to the creditors who enter into a contract with the company after it has become insolvent.

Decision

The Bundesgerichtshof has clarified that managing directors who have breached their duty to file for insolvency can be held liable for damages that only occurred after the directors have left the company. Even though the duty to file for insolvency does not apply to former directors, the director’s personal liability to creditors does not automatically end once they have left office. If, however, the company has financially recovered in the meantime, the former directors are not responsible for a second crisis and are not liable for damages which may then occur.

Key takeaway

If there are any doubts about a company's financial situation, the directors should consult their advisors to make sure that they comply with their legal duties and can avoid personal liability.