German insolvency proceedings expose company directors to high risks of personal liability. Claims brought on the basis of sec. 92(2), 93(3) German Companies Act (Aktiengesetz, AktG) and sec. 64 German Limited Liability Companies Act can have disastrous financial consequences. Damages can be in the millions. Therefore many company directors purchase directors’ and officers’ liability insurances (D&O insurance) to protect their personal assets.
However, some insurance companies recently have denied coverage for any case of sec. 92(2), 93(3) AktG and sec. 64 GmbHG, even though the insured director did not act consciously, unless breaches of these provisions is explicitly covered by the policy. This derives from the German Federal Court of Justice (Bundesgerichtshof) which has decided that claims on the basis of sec. 92(2), 93(3) AktG and sec. 64 GmbHG should not be regarded as claims for damages but as claims sui generis.
Claims based on sec. 92(2), 93(3) AktG and sec. 64 GmbHG can be brought against all members of the board, including non-executive directors (Mitglieder des Aufsichtsrats). Non-executive directors must prohibit executive directors from making payments after the company has become insolvent or after it is deemed to be over-indebted. If they fail to do so, non-executive directors can become jointly and severally liable for the payments made.
Directors should check their D&O policies and liaise with their insurer to avoid being held liable without coverage.