Standard of liability

General standard

What is the standard for determining whether a board member or executive may be held liable to shareholders in connection with an M&A transaction?

There are no specific standards in connection with an M&A transaction. As the transaction itself is a business decision, the business judgement rule applies. However, the management board or director must respect all statutory duties, and all obligations laid down in the shareholder’s agreement, statutes, etc. Regarding liability for tortious acts, a board member or director must have intentionally and immorally harmed the shareholders and intended that the shareholders suffered a loss.

Type of transaction

Does the standard vary depending on the type of transaction at issue?


Type of consideration

Does the standard vary depending on the type of consideration being paid to the seller’s shareholders?


Potential conflicts of interest

Does the standard vary if one or more directors or officers have potential conflicts of interest in connection with an M&A transaction?

The business judgement rule does not apply if there is a conflict of interest. A prerequisite for the application of the business judgement rule is that the manager’s decision is based exclusively on the interests of the company. The managing director must not allow him or herself to be guided by irrelevant aspects (ie, his or her own interests) when choosing between the various alternative courses of action.

Controlling shareholders

Does the standard vary if a controlling shareholder is a party to the transaction or is receiving consideration in connection with the transaction that is not shared rateably with all shareholders?

The standard does not vary. However, if a board member agrees on terms with the controlling shareholder that are not at arm’s length, or if the board member grants benefits only to a controlling shareholder, the board member can usually be held liable. Further, there might be tax implications (ie, hidden distribution of profits).