Managing director’s liability for delay in filing for insolvency and failure to disclose that the limited company is insolvent

The claimant made a claim against the former managing director of a now-insolvent German limited liability company (GmbH) for damages due to delayed filing for insolvency and omission in breach of duty to disclose that the company was insolvent upon concluding an instalments settlement for the claimant’s fees. The fees had indisputably arisen before the company became insolvent. The parties had concluded an settlement involving payments by instalment at a time when the company was already over-indebted and unable to pay.

Higher Regional Court Koblenz denied the claimant’s claims for damages both from section 823 subsection 2 German Civil Code in conjunction with section 15a German Insolvency Code and from section 826 German Civil Code. It said that the claim asserted by the claimant, which is not limited here to pro-rata damage, does not fall under the protection of section 15a German Insolvency Code. After all, section 15a German Insolvency Code aims for the timely start of the opening proceedings so that materially insolvent companies without personally liable shareholders would not be continued without insolvency-law protection to the detriment of current and future creditors. It pointed out that assignors whose claims arose before insolvency could basically only claim the pro-rata damage. However, the services leading to the payment claim were rendered by the claimant at a time when the company was not yet insolvent and its services for the limited company and the resulting payment claim for the protection under section 823 subsection 2 German Civil Code in conjunction with section 15a German Insolvency Code were not (yet) needed. The court reasoned that the instalments settlement concluded at the time of over-indebtedness and insolvency of the limited company does not alter this. The settlement does not record any services beyond the claim-establishing activities carried out by the claimant, services which as such could establish separate and new claims after insolvency. The content of the settlement left the principal debt untouched. It was limited merely to regulating payment in instalments.

Liability under section 826 German Civil Code was also rejected by Higher Regional Court Koblenz in the absence of unethical, wilful harm done to the former managing director. The threshold of especially reprehensible conduct was not exceeded by merely keeping secret the insolvency of the limited company upon conclusion of the instalments settlement and the lack of willingness and ability to pay on the part of the limited company. Keeping facts secret only establishes liability when the other party, in good faith and taking into account the prevailing opinion, could sincerely expect to be informed. Here it is essentially up to each party to safeguard their interests themselves. The facts clearly central to the other party’s decision-making must be revealed without being asked for, especially if they could prevent or substantially jeopardise the purpose of the contract. Then if it is evident that the company is over-indebted or insolvent, there is a duty to inform. In doing so, the particular circumstances of the individual case are to be taken into account. In this case, the claimant indisputably sought contact with the company via its authorised representative before concluding the instalments settlement, because it feared its claims would not be met due to the limited company’s account being frozen. A realistic observation allows the conclusion that it had recognised considerable financial problems on the part of the company. In view of this, maintained the court, the defendant ought to assume upon concluding the settlement that the claimant already knew about the difficult financial situation of the company and it therefore no longer needed to inform the claimant.