13. May 15

Executive board liable for inadequate compliance system

The executive board of a stock corporation (Aktiengesellschaft (AG)) or the management of a German limited liability company (GmbH) bears responsibility and is liable for a functioning compliance system. This stems from a ruling of the Munich Regional Court.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London - www.grprainer.com/en conclude: The Munich Regional Court delivered a spectacular judgment at the end of 2013. It sentenced a member of a stock corporation’s executive board to pay damages running into millions due to an inadequate compliance system (Az.: 5 HKO 1387/10).

A consequence of the inadequate compliance system was that “slush funds” had emerged within the company. The funds were used to bribe business associates and obtain orders for the company. Despite not being aware of this system, the executive board was sentenced to pay damages because among its responsibilities was to ensure a functioning compliance system.

It is clear from this ruling of the Munich Regional Court how important a functioning compliance system is for companies. It facilitates compliance with contractual regulations and statutory provisions. The body responsible for setting up an appropriate system and compliance with the rules is the executive board in the case of a stock corporation and the management in a GmbH. It is not sufficient to simply set up a compliance system; it has to be constantly reviewed for its functionality and, where appropriate, further developed. According to the German Administrative Offences Act (Ordnungswidrigkeitengesetz), businesses, including legal persons, are responsible for making sure that legal infringements do not arise and accordingly bear liability.

It is therefore essential for corporate management to set up a functioning compliance system and see to it that no legal infringements arise from within the company. If this does not happen, this represents a criminal breach of duty which may result in substantial damages claims by the company against those responsible.

The content and implementation of suitable compliance measures represent a great challenge for many businesses, particularly as statutory rules and regulations have to be observed here. In order to have a secure compliance management system and prevent the company from suffering economic losses as a result of legal infringements by employees, firms can turn to a lawyer who is competent in the fields of commercial law and corporate criminal law.

For more informations: http://www.grprainer.com/en/legal-advice/corporate-criminal-law/compliance.html

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