In the event of the disclosure of compliance violations, but also in the event of damages incurred within the company as a result of measures ordered or carried out by the company itself, board members or managing directors in Germany can sometimes be held personally liable by their own company. In a worst case scenario, this can threaten the existence not only of the company itself but also of the manager who has made the claim.
Standard for dutiful action
In the past, however, case law developed the business judgment rule, which was later incorporated into the statutory provisions of German stock corporation law. These provisions apply not only to the stock corporation, but also to the limited liability company (GmbH) and other forms of organization in Germany.
Five basic rules for dutiful action
According to this provision, managers or executives, by way of exception, may not be held liable for damages caused by their actions or omissions if they have acted in accordance with their duties. Concrete standards for dutiful conduct include:
- The existence of a business decision, i.e. a deliberate act or omission;
- the board or manager acted in good faith in the situation;
- the actions of the management board or managing director exclusively served the good of the company and thus the long-term strengthening of revenue and competitiveness;
- the decision was made on an appropriate information basis; a sufficient factual basis was created, the expertise of third parties (e.g. lawyers and/or tax advisors) was obtained if necessary and, in particular, a sufficient weighing of opportunities and risks for the company was carried out;
- the decision or measure was taken without the influence of extraneous interests or self-interest.
One of the reasons given for this “exemption model” is that entrepreneurial decisions in a market economy require a degree of freedom that cannot be controlled by the courts in order to be able to account for the dynamics of the market.
WINHELLER advises companies and NPOs on the business judgement rule
Do you need further information regarding the requirements of the business judgement rule in Germany and/or advice regarding the measures to be taken in the preliminary stage of a business decision to be made within your company? The experts at WINHELLER will gladly advise you. Please feel free to contact us at any time!
Continue reading:
Compliance: Avoiding Liability Traps in German Companies
Compliance Management Systems in Germany
