09. Sep 15

D&O liability: Minimise personal risk

Managers and executive bodies are increasingly finding themselves faced with liability claims and criminal prosecutions. For this reason, they ought to take measures to protect themselves accordingly.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London - www.grprainer.com/en conclude: Managing directors, executive boards and supervisory boards occupy posts that involve a high degree of responsibility in companies. However, it is also increasingly the case that they have to answer for mistakes. This can give rise to damages claims as well as criminal proceedings. One reason for this increase is that societal expectations of impeccable conduct placed on this group of persons have risen sharply.

Executive organs thus not only bear a lot of responsibility but also take a great personal risk, as they can be called to account and rendered personally liable even in the case of ordinary negligence. Breaching tax or social security obligations, using funds in a way that is contrary to the articles of association and misconduct at a time of crisis within a company or insolvency are examples of circumstances under which it is possible for claims to be raised specifically against managing directors, executive boards and supervisory boards. Depending on the given circumstances, they may be faced with claims for redress brought by their own company or third-party claims for damages. Active behaviour is not a prerequisite for liability in this context; a failure to act or a delayed response can also give rise to this.

There are, however, disputes regarding the scope of redress claims by companies against their own executive bodies. The Landesarbeitsgericht Düsseldorf (Düsseldorf Regional Labour Court) rejected unlimited liability for the members of corporate bodies in its ruling of January 20, 2015. In doing so, it largely confirmed the Arbeitsgericht Essen’s (Essen Labour Court) judgment dated December 19, 2013 (1 Ca 657/13).

Executive bodies should nevertheless take appropriate measures to protect themselves due to the personal risks involved. For example, it is possible to agree to provisions designed to limit liability in contracts of employment. Additionally, D&O insurance can be taken out. This ought to be tailored to the specific demands placed on the executive body in question. The insured sum should also be suitably high. Furthermore, it is advisable to set up an effective compliance system.

In order to implement these measures or enforce and fend off claims, executive bodies can turn to lawyers who are competent in the field of company law.

For more informations: http://www.grprainer.com/en/legal-advice/company-law/executive-supervisory-board.html

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