Director of Limited Company in Germany Subject to Similar Liability as GmbH Managing Director

As in the case of a managing director of a German Gesellschaft mit beschränkter Haftung (GmbH) [private limited company], the director of a limited company (ltd.) can also be liable if payments are made after the company becomes insolvent.

Even the director of a private company limited by shares (ltd.), the assets of which have become the subject of insolvency proceedings in Germany, can be held liable if he arranges for payments to be made after the company has become insolvent. That was the verdict of the 2nd Civil Panel of the Bundesgerichtshof (BGH), Germany’s Federal Court of Justice competent to hear cases pertaining to company law, among other things, in its ruling of March 15, 2016 (Az.: II ZR 119/14).

According to the GmbH Gesetz [Act on Private Limited Companies (GmbHs)], the managing director of a GmbH is liable for payments that he effects after the company becomes insolvent or its overindebtedness has been established. Payments that are consistent with the care of a prudent businessman are exempt from this rule, even if they were made after this point in time. The BGH held that this legislation could be suitably applied to the director of a ltd as well.

In the present case, the insolvency administrator of a ltd. demanded damages from the latter’s director. The company was registered as a ltd. at the commercial register for England and Wales in Cardiff. At the same time, it had a branch office in Germany, where it had also been entered into the relevant commercial register and conducted most of its business. The company was insolvent by no later than November 2006, yet the defendant director was said to have arranged payments between December 2006 and February 2007 amounting to approx. 110,000 euros. The insolvency administrator then sought to recover this money.

The Panel initially asked the Court of Justice of the European Union (CJEU) whether it is permissible to apply a Germany regulation to a foreign company, which the CJEU subsequently answered in the affirmative. The BGH therefore granted the claim, stating that the regulation in question concerning the liability of managing directors can also be applied to a ltd., the assets of which have become the subject of insolvency proceedings in Germany, and this does not violate the principle of freedom of establishment. The BGH concluded that by arranging payments even though the company was already insolvent, the director of the ltd. had rendered himself liable to pay damages.

Lawyers who are versed in the field of company law can offer advice both when disputes have already arisen and as a preventive measure.

GRP Rainer LLP is an international firm of lawyers and tax advisors who are specialists in commercial law. The firm counsels commercial and industrial companies and corporations, as well as associations, small- and mid-sized businesses, self-employed freelancers and private individuals worldwide from offices in Cologne, Berlin, Bonn, Dusseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London UK.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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