Liability of the removed managing director for immoral damage

The case

In the case in dispute, the defendant was the sole executive body and sole shareholder of a Swiss AG and its German subsidiary GmbH. During this time, the AG and GmbH sent emails to the plaintiff with offers for financial instruments, a false company presentation, and a draft contract with a request for signature.

In the meantime, the Swiss Financial Market Supervisory Authority FINMA withdrew the defendant’s signing authority because the AG was accepting public funds without a banking license, and BaFin (Germany) and Stiftung Warentest/Finanztest warned against investments in the GmbH due to the lack of a prospectus.

Shortly after the dismissal of the defendant managing director, the plaintiff signed a contract for a silent partnership and paid 30,000 euros to the GmbH. On the same day, bankruptcy proceedings were opened regarding the assets of the AG. The plaintiff did not receive any payments on her investment.

The course of the proceedings

The Regional Court dismissed the action for payment of damages in the amount of 30,000 euros plus interest, step by step against the transfer of rights from the investment due to immoral damage pursuant to § 826 BGB for lack of presentation of immoral conduct.

The Court of Appeal ordered the defendant managing director to pay (except for a portion of the interest as requested). It found that the companies had fraudulently raised investor funds and that the managing director was at least grossly negligent in not knowing this. An attribution of the damage caused by the conclusion of the contract was possible due to the transferability of the BGH’s case law on the liability of a former managing director for delayed insolvency.

With his appeal, the appellant sought the dismissal of the appeal, but this was unsuccessful in the matter. The BGH confirmed the judgment of the Court of Appeal in that the defendant managing director was liable for damages due to immoral damage.

The reasoning of the BGH

A liability of executive bodies under § 826 BGB exists in principle if the business model implemented by them is designed from the outset to deceive and harm customers (so-called “sham company”). The BGH also includes in particular cases in which the policy serves exclusively the own advantage of the persons acting.

With such a policy, the executive bodies would, according to general experience, at least take the customers’ damages into account. A leading position in such a company would then be immoral.

According to this guiding principle decision of the BGH, liability can also exist for cases in which the signing of a damaging contract only occurs after leaving the position as managing director. This is the case if the managing director has taken on another supporting function in the company after his dismissal or if the initiation of the conclusion of the contract has already taken place during his management activity in a function indispensable for the business activity of the company.

This already follows from the fact that the damage is then based on the activity of the managing director in the run-up to the conclusion of the contract. The BGH emphasized that the breach of duty establishing liability is then already causal for the damage according to the general liability principles on causality (equivalence, adequacy, protective purpose of the norm/duty). The damage caused by the conclusion of the contract is based on the risk created by the breach of duty to support the business model in a prominent function.

In the specific case, the breach of duty occurred through the misrepresentation of false facts through a grossly false company presentation and advertising ads disguised as articles, which falsely created the impression of a large, international company. This procedure and the actions of a managing director in a prominent and indispensable function in such a business model is objectively and subjectively immoral. The damage is based on this false information, as it was foreseeably jointly responsible for the later conclusion of the contract.

Practical advice: Liability in case of foreseeability of the conclusion of the contract

The BGH has therefore decided that even a dismissed managing director is liable in the event of a later conclusion of the contract if he was jointly responsible for the initiation of the contract. For your personal responsibility, it therefore depends on whether a later conclusion of the contract was foreseeable for you. This foreseeability is in any case given in accordance with the guiding principle decision if the later contract does not deviate significantly from a draft contract sent before you left the company. However, other processes within the scope of a contract initiation can also trigger such liability.

Therefore, even if you are leaving a company soon, do not proceed according to the motto “after me the deluge”. You are not only liable pursuant to § 43 para. 2 GmbHG for damages that occurred during your term of office, but also for damages from contracts that are only signed later, but are based on your earlier activity.

Please also note that the insurance cover of a D&O insurance is generally limited to negligent breaches of duty. A knowing or intentional breach of duty is generally not covered, so you will have to pay yourself in such cases.

We are happy to assist you with questions about liability, but also other topics for managing directors and other bodies of companies.

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