Management Liability and D&O Liability in Germany

In connection with managers, directors and senior executives, breaches of duty and liability often involve personal liability risks. That means: If damage has occurred as a result of conduct in breach of duty, liability may be assumed vis-à-vis the company or, in the case of external liability, vis-à-vis third parties. This liability applies jointly and severally, personally and to an unlimited extent - even in cases of only minor negligence.

Of particular relevance in this context is the fact that the burden of proof is shifted towards the acting manager: the company only has to prove (within the framework of internal liability) that there may have been a breach of duty and that it has suffered damage as a result. It is then up to the persons concerned to state and prove that they have complied with the standard of care directed at them; this also applies even after they have left the company (limitation periods for damages arising from breaches of duty of care of up to ten years!).

Personal liability generally applies to the entire private assets of the managers concerned. Depending on the amount of damage, this can be ruinous.

Caution! Even an honorary office is not immune to this - activities in foundations and nonprofit institutions are also subject to management liability.

The standards of the "Business Judgement Rule", which were established by German courts and later codified in law, regulate the aspects of dutiful conduct on the part of managers, executive bodies and senior executives, as well as the possibilities of exemption from the aforementioned duties - with the exception of the duties of legality which must be complied with by law - in favor of the persons concerned. They have to act:

1. within the framework of entrepreneurial decisions - and thus far from the statutory obligations of legality,
2. in good faith,
3. free from special interest or extraneous influences,
4. for the benefit of the company and
5. on the basis of adequate information.

Affected persons should seek professional help immediately and without delay in order to be able to effectively defend themselves against impending or asserted liability claims. Running limitation periods play an important role here. It is also vital to note that preventive measures must be taken in advance and are also part of the company's policy. These include - in addition to the necessity of dutiful conduct - among other things:

• Ongoing and periodic risk analysis based on the respective current legal situation
• Introduction of appropriate structural organizing measures in the company
• Strict compliance with documentation requirements
• Obtaining appropriate D&O insurance (directors and officers liability insurance)

Our experts competently advise and represent board members, supervisory officers, managing directors, senior executives as well as authorized signatories in areas of due diligence and in the event of any liability claims. We support you with:

• out-of-court defense of asserted liability claims,
• legal representation for any liability claims asserted or incurred,
• preventive as well as responsive counseling to avoid management liability cases,
• advice on the purchase of D&O insurance on the basis of pre-existing risks,
• risk analysis phase to identify individual risks caused by the individuality of the respective company through appropriate due diligence and analysis of existing precautions for conduct in conformity with compliance requirements,
• design of a compliance management system,
• implementing a compliance management system designed specifically for the individual case,
• monitoring plus any adjustments as needed,
• implementation by means of results from customized solution approaches,
• adaptation, individualization and expansion of existing compliance management structures according to individual needs.