In a long-awaited decision, the German Federal Court of Justice (Bundesgerichtshof) has strengthened the insured directors’ position.
Background
Under German law, the directors’ liability for payments made after the company has become insolvent or over-indebted is one of the greatest financial risks which a director can face during insolvency proceedings. Reliable D&O insurance cover is, therefore, a vital interest.
For a couple of years, German D&O insurers had been successful at arguing before the lower courts that they were allowed to deny cover where the director commits a “knowing breach of duty” by making payments after the company has become insolvent or over-indebted.
The insurers had argued that the director who made payments after the company has become insolvent or over-indebted had failed to file for insolvency in due course and, thus, acted in breach of a “major directors’ duty”. Under German insurance law, the breach of a “major duty” (Kardinalpflicht) justifies a rebuttable presumption of a knowing breach of duty.
Decision
Now, the Bundesgerichtshof has decided differently. The Court held that the directors’ duty to file for insolvency is not the same as the duty to refrain from making payments after insolvency occurred. Directors who do not file for insolvency in due course are not automatically obliged to show that they acted unknowingly with regard to the payments made. The burden of proof for a knowing breach of duty lies with the insurer.
Find out more
To discuss the issues raised in this article in more detail, please contact a member of our Restructuring and Insolvency team.
Bundesgerichtshof, 19 November 2025, IV ZR 66/25
