Today, the popular wisdom “they (only) go after the little guy” seems to apply to a limited extent only, at least in insolvency: Arcandor’s insolvency administrator, for example, holds the ex-management liable (here), as does Neckermann’s (here) and Air Berlin’s (here). However, even if “they” now go after the “big ones”, the perceived “little guys” do not get off scot-free, as the subsequently explained tightening in German jurisprudence on liability risks for managing directors in insolvency makes clear:
Under the respective provisision of § 64 S. 1 GmHG (“Gesetz betreffend die Gesellschaften mit beschränkter Haftung, GmbHG“, the German Companies Act pertaining to (small) companies with limited liability), the managing director will in general be held liable for such payments made after the company has become insolvent (so-called “payments reducing the insolvent estate”, “masseschmälernde Zahlungen“). German courts have traditionally held that incoming payments compensating the effect of such pay-outs would lead to an exoneration of the managing director. Originally, in rulings from 2014 and 2015, the German Federal Supreme Court (“Bundesgerichtshof, BGH“) even relativised the narrow interpretation of this exemption. (cf. for more details here (in German)).
With its ruling of July 2017, the court has now considerably tightened the conditions for an exoneration again. According to the BGH’s opinion, not every additional inflow of assets is to be considered as compensation for the previous reduction in assets. Rather, a direct economic, not necessarily temporal, connection with the payment is necessary so that the incomig assets can be assigned to the payment reducing the estate. Since it is only a matter of an economically allocable equivalent value reaching the insolvent estate that counts, no temporal connection is necessary. Hence, even a successful challenge by the insolvency administrator does not necessarily lead to a liability of the managing director.
However, such consideration received must be actually suitable for the actual realisation by the creditors in order to be able to compensate for the reduction in the insolvent estate. Yet, mere services rendered to the company usually do not fulfil this criteria according to the court’s new assessment. Services do not lead to an increase in the insolvent estate and are therefore no equivalent compensation for the outflow of assets. The same shall apply to energy supply and telecommunications services, charges for internet and cable television or the supply of beverages.
Also, the BGH did not permit an exoneration of the managing director pursuant to § 64 sentence 2 GmbHG, according to which the managing director will not be held liable for payments executed after the onset of insolvency maturity, as long as these are “compatible with the due care of a prudent businessman”. The court regularly only assumes such diligence only if the corresponding payment serves to “prevent the immediate collapse of a company which is also capable of being restructured in insolvency and the payment in question was therefore needed to avert greater damage for the creditors”. Even if the non-payment of beverage deliveries or cable television is certainly not “suitable” according to the aforementioned definition, this may not be quite so obvious when it comes to payments for energy supply, telecommunications and Internet services.
Taking into account that such compensatory payments are no longer covered by D&O insurance policies in Germany (more on this soon), the effect of this decision for managers in companies in a crisis can hardly be underestimated in practice.