Personal Liability of a German GmbH Managing Director in the Event of Insolvency (also applicable to an AG)

A situation frequently encountered by Hungarian suppliers (who later become creditors in insolvency proceedings) is that, after they have performed their contractual obligations, their German business partner files for insolvency. The creditor is then often left with no option but to accept the distribution quota determined by the German insolvency administrator. As a result, substantial losses are typically incurred, and creditors must often wait years for the German insolvency proceedings to conclude.

Thanks to our many years of experience and expertise in German insolvency law, we can offer creditors an additional and effective remedy: pursuing a damages claim directly against the managing director or chairman of the German company (whether a GmbH, GmbH & Co. KG, AG, or AG & Co. KG).

The most common sequence of events is as follows: the German company orders goods or services, the foreign business partner performs its obligations, and before payment of the invoice becomes due, the German company files for insolvency. Unlike Hungary, however, Germany imposes a strict obligation on company management to file for insolvency without undue delay. Failure to comply with this obligation may result in the personal liability of the company’s directors or officers.

When examining the facts of individual cases, it is frequently found that the management failed to comply with this duty, thereby causing losses to the company’s creditors. Under the strict provisions of German insolvency law, such conduct may open the door to personal liability claims against the managing director or other responsible officers.

An extract from a judgment in a case successfully handled by our firm before the Munich Regional Court, which became final and binding in the summer of 2017, is available for download as a PDF.