Frankfurt 
Personal liability of CEOs, directors, officers, and board members
The liability risks for CEOs, directors, officers, and board members are constantly increasing under German Corporate Law. It is not only the number of cases but also the amounts of individual claims that are higher than ever before. This development has its origin in various management failures of recent years that led to massive corporate scandals. Due to these incidents, the liability legislation in Germany has tightened and the German courts began handling the cases stricter (in particular regard to the degree of fault, the burden of proof, and the statutory limitation periods). This led to a significant increase in liability cases under German Corporate Law in the past years. Furthermore, shareholders and stakeholders of a business develop a more and more demanding attitude towards CEOs, directors, officers, and board members (of the management board, supervisory board, advisory board, board of trustees, executive committee, etc.) and do not hesitate to take legal action and hold managers personally liable whenever they suspect slight misconduct – this is at least the situation in Germany.
Under what conditions can the CEO, director, or board member be held liable?
Under German Liability and Corporate Law every CEO, director, officer, or member of the supervisory board has to perform their duties with the diligence of a reasonable and conscientious businessperson: This means that any conduct (action or omission) has to be measured on this liability scale. Personal liability of a CEO, director, officer, or board member occurs when a breach of duty leads to a financial loss for the business. In case of doubt, the burden of proof is on the CEO, director, or board member to provide evidence that his conduct was legally and economically appropriate. The statutory limitation period for liability cases under German Corporate Law is 5 years or, if the business is publicly listed, 10 years.
Typical cases of personal liability of CEOs, directors, and board members
- The CEO or director takes key decisions without an objectively reasonable basis of factual information
- Shareholder loans or intercompany loans are not handled properly and in accordance with German Corporate Law
- The opportunities and risks of a certain business decision are misjudged in a completely irresponsible manner
- Management action is not in accordance with the articles of association or with shareholder resolutions
- The supervisory board supervises the management carelessly and overlooks a measure with considerable potential for loss to the German company
- A disadvantageous management decision is taken despite a considerable conflict of interests, foreign influence, or self-interest from the decision maker
- Taxes or social security contributions are not properly paid to the German tax and social security authorities
- In a crisis, the management fails to inform the shareholders in time or to the extent appropriate according to German Corporate Law
- Despite insolvency or over-indebtedness, the CEO or director fails to file for insolvency in a timely manner as required under German Corporate Law