Increased Liability Risk for Managers of German Companies: German Federal Court of Justice Re-Defines Rules for Division of Management Duties

Starting Point

As a matter of principle, directors of German companies have a joint responsibility for their management, unless a legally effective division of duties has been agreed upon. For this division of duties, the German Federal High Court has recently re-defined the requirements (Bundesgerichtshof, Judgment of 06.11.2018, II ZR 11/17).

Re-defined Requirements for a Legal Division of Duties

Although a division of duties does not have to be in written form, it must have a clear and unambiguous assignment of duties and responsibilities among directors, which is supported by all of them. Apart from the personal qualification of each director for the duties assigned to her/him, each director must control regularly whether the other directors are acting legally by way of a plausibility check. In the case at hand, the German Federal High Court required the director, whose tasks were non-commercial, not only to regularly check the account statements of the company but also its management accounts. Otherwise, there could be a personal (!) liability for payments made by the other director(s) after the company became insolvent.

Recommendations

Although it is not legally necessary, a division of duties should be documented in written form. Otherwise, the directors may all point at each other when trying to prove that it was not their fault which may eventually lead to joint and several liability of all of them.

In case of directors of German companies who are abroad, i.e. not directly involved in the daily business, it is highly recommended to clearly and legally define the division of duties with the other directors and execute it accordingly. Directors who are not on-site have to stay informed on a regular basis in the sense of a plausibility check whether their colleagues behave legally. Even directors with non-commercial tasks need to make sure that they have a good understanding of the current financial status of the company, also regarding its liquidity.

In case of questions, please contact Dr. Oliver Wulff , he is specialized in the comprehensive legal support of mid-size companies.

Tel.: +49 (89) 290719-18

E-Mail: [email protected]