GER: Management Liability Limited by Internal Rules

Feb 9, 2024 Benn-Ibler Rechtsanwälte

According to the German Federal Court of Justice (Bundesgerichtshof, hereinafter BGH), internal rules of responsibility in the management of a legal entity cannot lead to the abolition of liability under criminal and liability law, but they can lead to a limitation of liability.

 An investor in a company brought a claim for damages against the management of the company’s subsidiary. The claim was based on losses resulting from failed investments by the subsidiary. As a project company, the subsidiary was supposed to carry out real estate projects.

Having invested EUR 50,000 in one of the projects, the claimant had entered into an investment agreement with the company in 2018. The agreement provided for a term of 24 months, an obligation to repay the full amount of the investment by the end of the commitment period at the latest, and a fixed interest rate of 6% per annum. However, in the meantime, all of the companies involved became insolvent. The plaintiff’s complaint was that the company was a mere shell company. The defendant argued that he had not known anything about the contracts of participation, stating that he had only been given a limited range of tasks.

The lower courts confirmed the liability of the management as a body under Section 823(2) of the German Civil Code (Bürgerliches Gesetzbuch, BGB) in conjunction with Section 32 of the German Banking Act (Kreditwesengesetz, KWG).

The BGH disagreed. For an infringement to occur, the company’s performance must also be at fault. To establish liability, the objective position of an executive body alone is not sufficient.

However, the internal rules of responsibility in the management of a legal entity cannot lead to its abolition. They can, however, lead to a limitation of its criminal and liability responsibility. In any event, however, there are certain monitoring obligations that must lead to intervention by the body that is not responsible if there are indications that fulfilment of the duties incumbent on the company by the responsible body is no longer guaranteed.

BGH III ZR 105/22 (9 November 2023)