The most important facts in brief:
- GmbH managing directors are personally liable for breaches of duty.
- The obligations for managing directors are very extensive, and the requirements for exemption from liability based on the Business Judgement Rule are very high.
- The liability of GmbH managing directors can be limited in the employment contract or in the articles of association.
When is a GmbH managing director liable?
A managing director of a GmbH is liable if the managing director breaches a duty and thereby causes damage. In addition, the claim for damages presupposes that the breach of duty was intentional or due to negligence. The claim for damages of GmbH managing directors arises from § Section 43 (2) GmbHG.
The following aspects are of particular importance for the liability of managing directors:
- Reversal of the burden of proofThe managing director bears the burden of proof that he has not breached any obligation. The reversal of the burden of proof follows from § Section 93 (2) sentence 2 AktG and is also applicable to managing directors of GmbHs. The reversal of the burden of proof poses a particular challenge for managing directors. In most cases, claims for damages against the managing director are only asserted after the end of the activity. Without active involvement in the company, it is very difficult for the managing director to prove that the managing director acted with due care.
- Unlimited liabilityGmbH managing directors are liable for damages incurred with their own assets. In principle, their own liability is unlimited.
- Internal and external liabilityThe liability of GmbH managing directors is divided into internal and external liability. In the case of external liability, managing directors are directly liable to third parties (e.g. lenders or customers). In the case of internal liability, the GmbH has a claim for damages against the managing director. External liability is the exception. External liability comes into consideration, for example, in the event of a delay in filing for insolvency.
What conditions must be met for the managing director to be liable?
A managing director of a GmbH is liable if he or she has intentionally or negligently breached a duty and damage has been caused as a result. The two central aspects of the claim for damages are whether the managing director has breached a duty at all and whether the managing director is at fault.
- Breach of dutyFor the question of breach of duty, the company only has to demonstrate that damage has occurred due to a possible breach of duty for the claim for damages. The managing director then has the duty to prove that he acted with due care and did not breach any duty. The list of possible breaches of duty is extremely long.
- FaultThe claim for damages presupposes, in addition to the breach of duty, that the managing director is at fault. This requires that the managing director has acted intentionally or negligently. Managing directors act negligently if they do not fulfill their duty of care. Managing directors can generally be required to seek external advice if they have no knowledge in an area. Accordingly, a defense against a claim for damages is rarely successful on the grounds that there was no fault.
- DamageA claim for damages requires that the company suffers a loss. A claim therefore presupposes that the GmbH has suffered a financial loss. In most cases, the damage consists of the GmbH itself having to pay compensation.
What duties are managing directors of a GmbH subject to?
The duties to which managing directors are subject are very extensive. Overall, the management is responsible for ensuring that the company complies with the legal requirements as a whole. On the one hand, the management must ensure that the provisions of the articles of association are complied with. On the other hand, the management is also responsible for compliance with the legal requirements. The legal requirements that the management must comply with include the following:
- OrganizationThe company must be organized in such a way that breaches of duty are prevented. This includes, for example, defining exactly which employee is responsible for which tasks.
- ComplianceThe management is responsible for setting up a system that ensures compliance with legal requirements. While such a compliance system is not necessary for small companies, as the managing director can oversee the company as a whole, it is necessary for larger companies to hire employees to set up and monitor a compliance system.
- InsolvencyThe management is regularly obliged to ensure that the company is solvent and not overindebted. If one of the grounds for insolvency applies, the management must immediately file for insolvency.
In addition to the aforementioned obligations, managing directors also have a number of other obligations, for example in tax law, data protection law, etc. The specific obligations also depend in particular on the sector in which the company operates.
When does the Business Judgement Rule protect against liability?
There is no breach of duty by a managing director if the managing director's action was permissible in accordance with the business judgment rule. The business judgment rule states that there is no breach of duty by the managing director if the managing director could reasonably assume that the decision was correct when making a business decision. This requires the following conditions to be met
- Entrepreneurial decisionThe Business Judgement Rule is only applicable to entrepreneurial decisions. An entrepreneurial decision is one that concerns the future development of the company. Business decisions do not include, for example, the fulfillment of tax obligations, the fulfillment of information obligations towards shareholders, etc.
- Adequate informationThe decision must be made on the basis of appropriate information. In concrete terms, this means that the managing director must take all available information into account when making the decision. Particularly with complex decisions, it is extremely difficult to take all information into account when making a decision.
- Without conflicts of interestThe managing director must not be subject to a conflict of interest when making a decision. If, for example, a decision leads to a member of the managing director's family gaining significant benefits, it is likely that the managing director is subject to a conflict of interest.
- The good of societyThe managing director must have the objective of acting for the benefit of the company when making a decision. Therefore, if the managing director actively wants to harm the company, the Business Judgement Rule is not applicable.
In principle, the business judgment rule is intended to protect managing directors and enable them to continue to make risk decisions. However, the requirements for the business judgment rule are very high. In particular, the requirement to take all information into account often leads to problems, as it is almost impossible to take all information into account when making difficult decisions.
Can the liability of GmbH managing directors be limited?
The liability of GmbH managing directors can be limited. This distinguishes GmbH managing directors from board members, for whom it is not possible to limit liability. The following options are available for limiting the liability of GmbH managing directors:
- Employment contract and articles of association: Both in the Employment contract as well as in the articles of association of the GmbH, it is possible to limit liability. In most cases, liability is limited by restricting liability to intent and gross negligence.
- Insurances: Insurance can also be taken out. Such insurance policies are called D&O insurance. Such insurance policies support managing directors both in defending themselves against claims and - depending on the specific contract - in settling the claim.
- Distribution of tasksOne way to avoid being responsible for all damages in a multi-member management team is to divide up the tasks. In such a division of tasks, the managing directors are responsible for their own areas. With regard to the other tasks, the managing directors only have to monitor that the other managing directors fulfill their tasks.
- ReliefThe actions of the management can be approved at the shareholders' meeting. The discharge has the consequence that no claims for compensation can be asserted against the management for such breaches of duty that result from the documents or reports available to the management.
Special cases of managing director liability
In addition to the general liability of managing directors for breaches of duty, there are some special liability regulations that govern liability for certain breaches of duty.
- TaxesManaging directors are personally liable for unpaid and unassessed taxes, § 69 AO. The liability is not towards the company, but towards the tax office. The liability is therefore a case of external liability. The tax office generally only makes a claim against managing directors if the company does not pay the taxes.
- Social insurancesSimilar to taxes, managing directors are also personally liable for unpaid social security contributions. In addition to financial liability, there is also the risk of criminal liability. Failure to pay social security contributions is a criminal offense.
- InsolvencyManaging directors who file for insolvency too late are personally liable for damages incurred by creditors, the company and contractual partners. In addition, delaying insolvency is also a criminal offense, making the occurrence of insolvency particularly risky for managing directors.