In a recent landmark cross border decision the Düsseldorf Higher Regional Court clarified that general managers cannot rely on their Directors and Officers Liability Insurance cover (D&O) in the event of a claim for repayment under Germany's "wrongful trading" legislation.
Providing cover for the directors and officers of a company or the company itself, D&O insurance provides reimbursement in the event the insured suffers loss as a result of legal action brought for alleged wrongful acts of the directors and officers.
Pursuant to S.64 of the German Limited Company Legislation, directors of German companies are personally liable for payments made without "due care" by their companies if it is found there was a delay in filing for insolvency proceedings. Inviting heavy fines into the hundreds of millions of euros, the decision to deny the companies protection under D&O insurance for wrongful trading cases could have far reaching consequences across Europe if the trend continues.
The general effect of this is yet to be felt cross border but will mean general managers, board members and directors will need to be alert for impending financial crises and their obligations to file for insolvency.