Exemption from liability for GmbH managing directors
The managing director of a Gesellschaft mit beschränkter Haftung (GmbH), a type of private limited company in Germany, may be faced with liability claims if he breaches his obligations. That being said, it is possible under certain circumstances for him to request a full exemption from liability.
GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London conclude: The managing director of a GmbH can be held personally liable if, for instance, he breaches his duty of cure to the company or fails to ensure proper payment of public charges such as taxes. Personal liability looms particularly large if he does not file for insolvency on time.
However, in this regard, the managing director can also end up between a rock and a hard place. This might be the case, e.g. if he highlights the company”s impending over-indebtedness or insolvency to the shareholders, who subsequently prohibit him from filing for insolvency on behalf of the company. To see off this risk, he may then be able to request that the shareholders grant him a full exemption from liability. The Landgericht (LG) München [Regional Court of Munich] recognized this claim in its ruling of May 22, 2015 (Az.: 14 HK O 867/14).
The Landgericht München held that the managing director of a GmbH can request a full exemption from liability to see off any risks he might be faced with, particularly with reference to sec. 64 of the GmbHG (act regulating GmbHs), if the shareholders of the GmbH refuse to approve the managing director”s wish to file for insolvency at the point when insolvency is an imminent prospect. In this context, it is possible to establish “imminent insolvency” by citing evidence.
The LG München went on to say that even if insolvency is imminent, the managing director is only free from risk when filing for insolvency if the shareholders approve this motion. Failing this, he risks rendering himself liable to pay damages vis-à-vis the company. Having said that, impending insolvency can quickly progress to actual solvency. The Court stated that the managing director is then subject to unlimited personal liability, whereas the shareholders are only liable to the value of their investment.
To this extent, claiming exemption from liability offsets the constant risk of being faced with personal liability as a managing director if insolvency goes from an imminent prospect to a reality.
Agreements between shareholders and managing directors ought to be prepared in as much detail as possible and a satisfactory D&O (directors and officers) insurance policy taken out to prevent legal disputes from occurring. Lawyers who are experienced in the field of company law can advise and represent shareholders and managing directors.
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