Cases in case law on the personal liability of managers are obviously on the increase. In consulting practice, it is noticeable that the opinion that liability is limited when using a German GmbH, GmbH & Co. KG or AG is as widespread as it is wrong. On the contrary, it is correct that both managing directors and board members in Germany as well as supervisory board members and, if applicable, advisory board members can be personally liable without limitation in the event of conduct in breach of duty (cf. Sec. 43 (2) GmbHG, Sec. 93 (2), Sec. 116 AktG).
Transaction processes, i.e. the purchase and sale of companies in Germany and shareholdings or German real estate, also prove to be particularly relevant in terms of liability, for which a D&O insurance policy taken out, for example, will often be insufficient in terms of amount alone. Even if the insurance denies liability for compensation and the manager is ordered to pay damages, personal liability can have catastrophic consequences. And even simple breaches of duty by management in day-to-day business can lead to personal liability more quickly than expected.
Therefore, it is a matter of developing and implementing de-liability strategies, both at the corporate level and in the personal sphere, and 3Q|Law will be happy to help you with this.
The legislature has initiated a fundamental change in corporate law in a whole series of laws, beginning with the Corporate Control and Transparency Act (KonTraG) of April 27, 1998. Against the background of possible deficiencies in the German system of corporate management and control, as well as the globalization and internationalization of the capital markets, the German government appointed the Government Commission on Corporate Governance, which presented its final report in July 2001. Since then, there have been numerous further laws and revisions to the Corporate Governance Code, which overall have significantly tightened the liability framework for management (and not only management boards, but also managing directors of medium-sized companies, supervisory boards and advisory boards).
A core provision of the KonTraG is Section 91 (2) of the German Stock Corporation Act (AktG), a provision that requires company managements to introduce and operate a company-wide early warning and monitoring system for risks (risk management system).
The legislator is very much concerned with strengthening confidence in the stock markets and investor protection, but also the performance of Germany as a financial center. This depends to a large extent on the confidence of private and institutional investors in the integrity, stability and transparency of the market. In the opinion of the legislator, corporate crises due to mismanagement in recent years have deeply shaken investor confidence in the integrity of corporate management and thus at the same time confidence in the stock market.
It is of particular importance for the management of German medium-sized companies that the evaluations and standards under stock corporation law also apply to typical medium-sized company forms such as GmbHs, KGs or GmbH & Co. According to case law, the degree of due diligence must be based on the purpose of the company, the sector and the size of the company, as well as the specific decision-making situation. However, according to Section 93 (1) sentence 2 AktG, which was newly introduced by the UMAG, a breach of duty does not exist "if the management board member [Note: the same then applies to medium-sized managing directors], when making an entrepreneurial decision, could reasonably assume that he or she was acting in the best interests of the company on the basis of appropriate information". However, the legislator has not yet expressly introduced a statutory provision comparable to this "business judgment rule" for managing directors of medium-sized companies because it considers its scope of application to apply to all types of companies in general anyway.
Due to the many parallels in German stock corporation law and GmbH law, case law applies Sec. 93 (1) Sentence 2 AktG analogously to the GmbH managing director in any case. Differences may arise in particular from the fact that the GmbH managing director is bound by instructions.