BBL: Caution with the liability of the managing director in the self-administration

By Claudia Brosche and Peter Jark

06.08.2018

The Federal Court of Justice (“BGH”) ruled out on 26 April 2018 concerning the file number IX ZR 238/17 that the managing director of a company in self-administration is liable for culpable breaches of duty according to §§ 60, 61 Insolvency Act (“InsO”). The BGH sees a parallel to the liability of an insolvency administrator in insolvency proceedings, although the managing director is not a qualified insolvency administrator. The required qualifications for a managing director are increasing.

Underlying facts

Over the assets of the company, structured as GmbH & Co. KG, insolvency proceedings were opened and self-administration was ordered. The defendant was appointed Managing Director of General Partner (in this case the GmbH) after having already advised it as an expert on reorganisation. Within the scope of the insolvency plan confirmed by the responsible court, the insolvency proceedings against the company were revoked. In the further course of business provided for by the insolvency plan, the company ordered goods from the creditors, who delivered them as agreed and thus became creditor. However, the company never paid the invoices for the ordered goods. Insolvency proceedings were again opened over the assets of the company due to new reasons to file for insolvency.

The creditor asserts a claim against the managing director of the GmbH for damages due to the loss of receivables in the amount of the invoices.

Legal question to be answered

In the present case, the BGH had to clarify whether a managing director of a self-administered company is liable for damages in the same way as the insolvency administrator in insolvency proceedings in accordance with §§ 60, 61 InsO. Both lower courts had rejected such liability.

Summary of ruling

Contrary to the previous instances, the BGH has ruled that the liability of the managing director may arise in this case analogously in accordance with §§ 60,61 InsO. In particular, he draws a parallel to the insolvency administrator. First of all, he justifies his argumentation by the fact that under the Insolvency Code the provisions on standard insolvency proceedings also apply to self-administration. Thus the liability provisions of §§ 60, 61 InsO, i.e. the underlying reasons for liability for an insolvency administrator, also apply. These provisions regulate the insolvency administrator’s liability for culpable breaches of duty (§ 60 InsO) and the administrator’s obligation to pay damages in the event of non-performance of a mass obligation (§ 61 InsO). Since in this case the tasks and the duties of the managing director in self-administration are aligned with the activities of an insolvency administrator, an extended liability of the managing director for these same activities is also required. In particular, this takes into account the purpose of the code, so that the creditor worthy of protection is given the opportunity to make use of the responsible representative of the insolvent company, i.e. also the managing director in self-administration. Furthermore, a managing director in self-administration cannot claim that he is liable here only according to principles of company law. On the one hand, according to company law standards, the managing director is only subject to liability within the company. On the other hand, self-administration is only ordered upon express application by the managing director (§ 270 Paragraph 2 No. 1 InsO), so that the managing director has to deal in detail with his additional obligations under insolvency law. He cannot rely on his lack of knowledge and lack of experience, because the demands on his duty of care do not depend on individual abilities. Therefore, the insolvency-specific liability must also be imposed on him. In addition, self-administration may only be ordered if the creditor does not suffer any disadvantage as a result (§ 270 Paragraph 2 No. 2 InsO); consequently, the creditor must also be granted protection under liability law, which is equivalent to regular insolvency proceedings. Otherwise there would be a disadvantage for the creditors, as they have fewer liability claims. As a result, self-administration would have to be rejected. Consequently, the BGH comes to the conclusion that the managing director in self-administration is also subject to insolvency-specific liability.

What to do

The managing director in self-administration must seek advice on his duties in connection with this special situation. This is the only way to avoid any claims. Otherwise, it must be checked in each individual case whether the managing director of a company can be held liable for self-administration if business relations were entered into with the company during the insolvency and damages result from this. The trustee is also liable. The managing director cannot refer to any ignorance or inexperience in self-administration. This ruling has given the creditor a further protective shield, which also gives him a liability claim against a third party other than the debtor in his own management. However, for all chances liability should first be checked whether a corresponding D&O exists, because the claim alone does not compensate for the damage.