German Court clarifies scope of business judgment protection for managing directors

An insolvency administrator, sought damages from a managing director for breach of duty (under section 43(2) GmbHG) and breach of trust (under section 823(2) BGB in conjunction with section 266 StGB). The claims arose from speculative electricity short sales that far exceeded the company’s core business.

Business judgment rule

The German business judgment rule, protects managing directors from personal liability when making business decisions provided the decision was made in good faith, based on appropriate information, without conflicts of interest and aimed at the company's best interest.

Decision

In this case, each individual short sale far exceeded the company’s annual customer delivery volume, however, adequate due diligence and risk controls were not carried out. The Court held that entrepreneurial discretion requires a sufficiently informed decision-making basis. Reliance on expected price declines without sufficient analysis or effective risk management breached managerial duties.

Key findings

• Managing directors may be in breach of duty when engaging in high-risk speculative transactions without a carefully prepared information base. Business judgment protection only applies to decisions grounded in properly researched facts.
• The extraordinary scale of the trades required heightened diligence and strict risk controls.

• Formal governance procedures must be followed. Informal discussions with public shareholder representatives did not constitute valid approval.

• The conduct also constituted a breach of trust under Section 823(2) BGB via Section 266 StGB, with damages aligned to those under corporate liability rules.
• Procedural defences, including references to industry practice, were rejected; speculative transactions require analysis beyond generally available information.

Brandenburg Higher Regional Court (OLG Brandenburg), Judgment of 9 April 2025 – 4 U 144/23.

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