The liability regime under Section 64 sentence 1 GmbHG and Sections 92 para. 2, 93 para. 3 Nr. 6 AktG for payments made after the company’s insolvency imposes severe personal liability risk on the management of limited liability companies and stock corporations. This does not only apply to the management of German limited liability companies (“GmbH”) and stock corporations (“AG”) but also to companies incorporated under foreign law that have their centre of main interest in Germany, as the European Court of Justice has decided just recently. Following the continuous criticism of these liability provisions in German insolvency law literature, the Federal Court of Justice (Bundesgerichtshof – “BGH”) has now slightly attenuated this liability concept in a series of recent decisions.

Management liability for payments under Section 64 GmbHG and Sections 92, 93 AktG

According to Section 64 sentence 1 GmbHG and Sections 92 para. 2, 93 para. 3 Nr. 6 AktG, the management of a GmbH or AG can be held liable, in general, for any payment made by the company after it has become insolvent. These liability provisions have been used extensively by insolvency administrators and thus subjected the members of the company’s management to high risk of personal liability due to the facts that (a) the liability starts as soon as the company has become over-indebted or illiquid (a point of time which – as practice shows – is discovered by the management often much later and which can be argued in a law suit rather easy by the insolvency administrator) and (b) that theses liability provisions, in general, applied to every payment made on behalf of the company with only a very few exceptions. Furthermore, the wide scope of the liability regime for payments made after the company’s insolvency is determined by the broad definition of the term “payment” which covers any reduction of the company’s assets. As a consequence of this broad definition, the collection of receivables onto a debit account of the company also qualifies as payment under the liability regime since collecting the company’s receivable and offsetting it against the debt on the bank account leads to a reduction of the company’s assets in favour of a creditor (the account-holding bank).

Restricted definition of “payments” in recent BGH-decisions

With its decisions dated 18 November 2014 (II ZR 231/13), 23 June 2015 (II ZR 366/13) and more recently 8 December 2015 (II ZR 68/14) regarding the liability for payments after the company’s insolvency, the BGH has now narrowed the definition of “payments” under Section 64 sentence 1 GmbHG and Sections 92 para. 2, 93 para. 3 Nr. 6 AktG adopting a more commercial view. According to the aforementioned decisions of the BGH, payments are excluded from the aforesaid liability if they are compensated in direct correlation with the respective payment (asset swap) at the moment of the relevant transaction. Furthermore, no liability is triggered by payments that relate to a claim of the company which has been created and assigned as security before the insolvency of the company and therefore – being subject to the right of separate satisfaction under German insolvency law – would not have been available for the satisfaction of the company’s creditors anyway. According to the most recent decision of the BGH, the management eventually cannot be held liable for payments which constitute a mere swap of securities from a commercial point of view. In all of the aforementioned cases, the respective payments from a commercial point of view do not lead to a reduction of the company’s assets and therefore do not trigger the liability of the management in accordance with Section 64 sentence 1 GmbHG and Sections 92 para. 2, 93 para. 3 Nr. 6 AktG.

Collection of receivables onto a debit account in light of the recent BGH-case law

In view of the aforementioned collection of receivables onto a debit account of the company, the new decisions of the BGH regarding exemptions to the management’s liability for payments after the insolvency of the company can be illustrated in more detail as follows:

  1. No liability under Section 64 sentence 1 GmbHG and Sections 92 para. 2, 93 para. 3 Nr. 6 AktG will attach, if a receivable of the company is collected on its debit account, decreasing the debt on the account and the new credit funds made available hereby are directly used in return to acquire valuable goods for the company. Deviating from its previous decisions, the BGH now no longer requires that the compensation for the payment still exists in the companies’ assets at the moment of the opening of insolvency proceedings. Instead, it is sufficient that the value of the acquired goods compensates the previous decrease of assets by the payment at the moment of the acquisition (BGH II ZR 366/13; BGH II ZR 231/13). From a commercial point of view, this case constitutes a mere swap of assets and therefore does not lead to a liability under Section 64 sentence 1 GmbHG and Sections 92 para. 2, 93 para. 3 Nr. 6 AktG.
  2. Likewise, no liability will attach, if a receivable of the company is collected on its debit account and the new credit funds made available hereby are then withdrawn from the debit account and paid into a credit account of the company, thus securing the funds for the insolvency estate (BGH II ZR 366/13). In this way, the previous reduction of the company’s assets (by means of collecting and offsetting the receivable against the debt on the account) is compensated by the subsequent transfer of the newly available credit funds to a credit account of the company.
  3. The same applies, if as a result of the collection of the receivable onto the debit account and the reduction of the debt on the account hereby, granted securities of the account-holding bank are released and transferred back to the assets of the company (BGH II ZR 366/13). Here, the decrease of assets by means of collecting and offsetting the receivable against the debt on the debit-account is compensated by the receipt of the assets formerly granted as securities to the bank.
  4. Furthermore, a liability for payments made after the company’s insolvency is excluded if the collected receivable had been assigned to the account-holding bank as security for the debit account and the receivable has been created before the insolvency of the company (BGH II ZR 366/13). In this case, the collected receivable would have been subject to the bank’s right of separate satisfaction under German insolvency law anyway, so that the later insolvency estate could not be affected by the collection and offsetting of the receivable against the debit account.
  5. According to the most recent decision of the BGH, the aforesaid finally also applies, if the collected receivable that has been assigned to the account-holding bank as security for the debit account was created after the insolvency of the company but by way of supplying goods to the debtor of the receivable, which on their part had been transferred to the bank as security before (BGH II ZR 68/14). In this case, only a swap of securities takes place and the later insolvency estate ultimately is not affected by the collection and offsetting of the receivable against the debit account.

Continuous liability risks for payments made after insolvency despite recent decisions of BGH

Although the recent decisions of the BGH with regard to management liability under Section 64 sentence 1 GmbHG and Sections 92 para. 2, 93 para. 3 Nr. 6 AktG attenuate management liability risks for payments made after the company’s insolvency and therefore point in the right direction, the liability regime under the aforesaid provisions remains a significant risk for the management of a company in economic crisis. Given the fact, that the aforementioned situations are exceptions to the management’s general liability for payments made after the company has become overindebted or illiquid, the burden of proof for such exceptional circumstances lies with the management. Therefore the members of the management will have to monitor the financial situation of the company closely and continuously. Furthermore, they will have to ensure that they can prove any such specific circumstances as laid out above, which exclude a liability under Section 64 sentence 1 GmbHG and Sections 92 para. 2, 93 para. 3 Nr. 6 AktG (e.g. the receipt of valuable goods in direct connection with and as compensation for the payment made).