Managing director’s right to exemption in the case of impending insolvency
LG Munich I, judgment of 22 May 2015 – 14 HK O 867/14
Regional Court Munich I affirmed in the present proceedings the right of a limited company managing director to receive a comprehensive liability exemption against the shareholders to guard against her risks especially from section 64 German Limited Liability Companies Act after the shareholders in the stage of impending insolvency (section 18 German Insolvency Code) had not approved the filing of an insolvency application by the managing director.
As part of the balancing of interests carried out, Regional Court Munich I took into account the following aspects: if there is simply impending insolvency, the managing director of a limited liability company can himself, without risk, despite section 18 German Insolvency Code only file an application for insolvency if the shareholders have agreed to the application, because otherwise he could make himself liable for damages. However, a unique event can turn impending insolvency very quickly into actual insolvency, because even the lack of capacity to pay 10 percent of outstanding debts can be enough for this to happen. At the time at which insolvency has occurred, the managing director is immediately liable according to section 64 sentence 1 German Limited Liability Companies Act personally and without restrictions, without involving the expiry of the 3-week period in section 15a German Insolvency Code. What must also be taken into account, continued the court, is that the shareholders themselves are only liable to a limited extent, in other words with any deposit they put in, but the management is unrestrictedly liable with its entire own assets in the event of insolvency occurring. Also, since ESUG (the German Act on the Simplification of Company Restructuring) came into force in 2012, it is the stated aim of the legislator to allow insolvency to be filed for as early as possible, in other words even when insolvency is merely pending. This is rewarded with the option of types of restructuring according to section 270b German Insolvency Code. Regional Court Munich I therefore affirmed in principle a claim by the managing director to exemption. This right to exemption from liability is directed, in the view of Regional Court Munich I, towards the shareholders and not towards the represented company, as in the latter case there may be rights of contestation. Also, the rights of the shareholders themselves under Art. 14 German Constitution should be protected by the indirect “reservation” of the insolvency application filing according to section 18 Insolvency Code.
Finally, Regional Court Munich I clarified that the claim to exemption from liability is compensation for the permanently impending risk of liability being applied according to section 64 German Limited Liability Companies Act if the impending insolvency becomes actual insolvency. As part of the exemption from liability it is therefore only to be determined individually whether this status has been reached; but the court pointed out that it was guided by the standards of section 18 German Insolvency Code here.
Any questions? Please contact: Dr. Daniel Kassing
Practice Group: Insurance & Reinsurance