Business in Germany may also be done by using the legal form of a Limited company. If, however, insolvency proceedings are initiated in Germany with regard to the assets of a private company limited by shares (Limited) registered within the English and Welsh company register, claims may be filed against the director for payments made after insolvency occurred.
Company is liable under German law
In the case decided by the Federal Court of Justice, insolvency proceedings were initiated against a company founded under English law, but predominantly operating in Germany. The insolvency administrator filed a claim under the Act on Limited Liability Companies against the company’s director for the refunding of payments that she had made to third parties after insolvency. Some of the payments were sent to a company owned by the director herself.
Erfurt Regional Court, the court of first instance, had allowed the complaint. The director’s appeal to the Higher Regional Court in the city of Jena was, however, rejected. The German Federal Court of Justice, to which an appeal was then made, submitted two legal questions to the Court of Justice of the European Union for clarification. The court decided that European law, in particular freedom of establishment and the European insolvency regulations, are not contrary to the application of the German Act on Limited Liability Companies.
Modernization of the Act on Limited Liability Companies
Previously, entrepreneurs selected the legal form of a limited company for a business primarily operating in Germany because share capital, as requested for a GmbH, was not necessary. When the Act on Limited Liability Companies was modernized, it created the option of forming a limited liability entrepreneurial company with a share capital of one euro. This means that the need for a limited company no longer exists. The decisions by the European Court of Justice and the German Federal Court of Justice clarified that the legal form of a limited company is no guarantee for evading German liability rules.
Our specialized attorneys will be glad to assist you with any further questions regarding liability of companies in Germany.
Federal Court of Justice, Judgment of 03/15/2016, III ZR 119/14