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Directors’ liability in Germany

Directors’ liability in Germany

Posted by: Susanne Hermsen
In Germany, the Geschäftsführer is at the helm of the GmbH. His position is fundamentally similar to that of the director of a Dutch private limited company (B.V.). Nonetheless there are a number of differences when it comes to personal liability.

The first major difference between Germany and the Netherlands is that under German law, only a natural person can be director of a GmbH, unlike in the Netherlands where a legal entity – for instance a B.V. – can also hold this position.

Internal liability
A Geschäftsführer must satisfy a number of obligations. First of all he must observe due care. Any culpable, intentional or reckless breach of the obligations can result in liability.

If a GmbH has more than one Geschäftsführer, they are in principle jointly and severally liable for the performance of their duties. Shareholders of a GmbH can impose a segregation of duties. This can give rise to a limitation of liability for the Geschäftsführer who is required to follow these instructions from the shareholders.

A Geschäftsführer is required to refuse to carry out instructions that are in breach of ordinary business operations or legislation, however.

The independence of the management is the starting point under Dutch law; however, the company’s articles of association may stipulate that the management must follow the instructions of another company body (for example, the general meeting of shareholders).

The Geschäftsführer can delegate performance of his duties to third parties, but he does remain responsible for these duties and he must monitor performance of them.

External liability
The Geschäftsführer is, for instance, liable to the creditors of the company on grounds of unlawful act, on account of infringement of a right effective to the benefit of these third parties, in the event of intentional breach or if his action is at odds with public morals.

Not every error made results in personal liability. This is only the case if the Geschäftsführer can be personally and seriously blamed. This could include a situation, for instance, in which the Geschäftsführer enters into an obligation on behalf of the company while knowing or reasonably being able to suspect that the company will not be able to comply with its obligations, or not within a reasonable time frame.

The Geschäftsführer has the obligation of the employer. This means that he is responsible for, among other things, orderly bookkeeping, preparation of the balance sheet and the filing of preliminary turnover tax returns. Personal liability becomes an issue if an obligation is breached. If the duties have been violated intentionally or as the result of gross negligence, there could be both property liability and criminal consequences.

The differences concerning external liability are the same in Germany as in the Netherlands. External liability relies strongly on the conduct of the director/Geschäftsführer and as such is an easy risk to prevent. There is a difference concerning liability as soon as the GmbH comes close to becoming insolvent. In that case a director can become liable for loss or damage if he applies for insolvency too late.

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