The managing director of a GmbH (limited liability company) is the legal representative of the company. He manages its business operations and represents it externally. Without him, the GmbH cannot act. While the GmbH’s liability is limited, this does not apply to the liability of the managing director in cases where he could be held liable exceptionally.
From the managing director’s perspective, the GmbH may be the creditor from whom the greatest risk arises for him. He works for it, but as soon as it suffers damage, he may be called upon (at the latest by the insolvency administrator) to compensate for the incurred damage. Thus, dealing with the issue of internal liability is particularly relevant for managing directors.
When the managing director is held liable, it is important to distinguish between the liability of the managing director in the internal relationship with the company and its shareholders and the liability in the external relationship with third parties, such as suppliers, customers, and/or authorities.
Liability of the GmbH Managing Director According to § 43 GmbHG
§ 43 GmbHG represents the most important liability provision for managing directors. According to this, the managing director of a GmbH must apply the care of a prudent businessman in matters of the GmbH. He is liable to the GmbH for damages caused by his culpable violation of the resulting duties. If several managing directors are appointed, they are jointly and severally liable according to § 43 paragraph 2 GmbHG. The liability claims expire after five years.
1. Preconditions for Liability
a. Managing Director
The prerequisite for liability under § 43 GmbHG is initially that the person to be held liable was effectively appointed as managing director. The managing director must have accepted the office. However, liability under § 43 GmbHG is also possible if the appointment as managing director was invalid, but the person acted as managing director nonetheless. In so-called “straw man” cases, the managing director positioned as a straw man is liable; however, he may be able to claim damages from the actual party behind him.
b. Breach of Duty
The person acting as managing director must also have violated his duties in order to be held liable. For example, actions taken by the managing director could result in liability under § 43 GmbHG if they conflict with the GmbH’s purpose. The managing director must align his actions with the welfare of the GmbH. He must act loyally toward the GmbH, as he is essentially a trustee of another’s property—the GmbH’s assets. As such, the managing director must handle the foreign assets with care and must not treat them as his own.
The managing director must also supervise his employees and may become liable if damage occurs due to a failure in supervision.
Additionally, it is generally considered a breach of duty if the managing director engages in an impermissible transaction.
Moreover, if a managing director does not have the necessary expertise to make a decision, he is obligated to consult with experts in order to limit the risks associated with his decision.
If multiple managing directors are appointed, they have various rights and duties to exchange information, not least because they are jointly and severally liable under § 43 GmbHG. Thus, they must monitor each other to some extent.
c. Duty of Care
The managing director owes the care that a prudent businessman in a responsible management position would observe when independently managing third-party assets. A claim for damages only comes into consideration when the managing director clearly exceeds the limits of responsible business conduct.
The managing director is subject to a strict duty of legality.
2. Burden of Proof
If the above conditions are met and the GmbH wishes to hold the managing director liable, the issue of the burden of proof arises. However, the distribution of the burden of proof is not favorable to the managing director.
Contrary to civil procedural law principles, according to which the claimant normally must prove the conditions for the creation of his claim when alleging a claim against the defendant, the managing director must discharge himself here. This means that if a GmbH wants to claim damages against its managing director for a breach of duty under § 43 GmbHG, the GmbH must generally prove the occurrence of the damage and the causal connection between the managing director’s misconduct and the damage. The GmbH must present facts that at least suggest the possibility of a breach of duty by the managing director and resulting damage, according to the Federal Court of Justice.
On the other hand, the managing director bears the burden of asserting and proving that he has exercised the care of a prudent businessman or that the damage would have occurred even with the application of such care, or that it was impossible for him to comply with this duty of care without fault. The managing director’s fault is presumed—refutably.
Thus, in the event of a dispute, the managing director must be able to prove, for example, through sufficient documentation, that he carefully prepared a particular business transaction and that the resulting damage was not caused by his breach of duty.
Note: This text makes no claim to completeness and does not constitute legal advice. Advice is provided exclusively on a case-by-case basis through an examination of the specific facts from a legal perspective.
If you require legal advice on these or other legal issues, feel free to contact Attorney Eugen Balin, LL.M. at info@balin-legal.de.
