German Federal Court of Justice (BGH): Managing Directors of a German GmbH Do Not Owe a “Duty of Loyalty” to the GmbH's Creditors

In its judgment delivered on 7 May 2019, the German Federal Court of Justice (Bundesgerichtshof, BGH) held that it is not possible to successfully pursue a damages claim against the managing director of a GmbH (German limited liability company) under Section 826 of the German Civil Code (BGB) for intentionally causing harm in a manner contrary to public morals. In cases involving indirect losses, liability for damages can only arise where the conduct contrary to public morals is directed towards the party that actually suffered the loss. For this purpose, however, there must be some form of legal relationship between the external third party and the managing director within which a legal duty could be breached. Although a managing director is under an obligation to ensure the proper management of the GmbH, this duty is owed to the GmbH itself and not to external third parties. Consequently, a managing director does not incur personal obligations towards third parties merely by virtue of his or her position within the GmbH. Accordingly, the BGH reaffirmed in its judgment that a managing director’s duty to ensure the lawful and proper operation of a GmbH exists solely in the relationship between the managing director and the company. No corresponding duty of this nature is owed to the creditors of the GmbH.