25.05.2020

Liability of decision-makers in corona-related risk decision

The current pandemic situation requires decision-makers in companies, such as board members (Vorstände) or managing directors (Geschäftsführer), to make decisions with sometimes considerable economic risks on a very vague information basis. For the persons acting in this respect, in addition to the question of the economic consequences for the company, the question of a possible personal liability always arises as well, if a risk actually materializes later on. The decision-maker is not only threatened with economic consequences for possible damages, but also with criminal consequences, since he is regularly regarded as the administrator of other people's assets and therefore the offence of embezzlement (Untreue) under Section 266 German Criminal Code ("StGB") can quickly be fulfilled.

This and a very worth reading article by Prof. Dr. Dr. Michael Kubiciel (which is the main basis of the following text), published in issue 18/2020 of the Neue Juristische Wochenschrift under the title "Haftung für unternehmerische Risikoentscheidungen während der Corona-Pandemie" (Liability for entrepreneurial risk decisions during the corona pandemic) are taken as an occasion to point out in the following the liability risks of managing directors (Geschäftsführer) or board members (Vorstände) of a corporation when making risk decisions.

1. In General

In general, a member of the management board (Vorstandsmitglied) of a stock corporation (Aktiengesellschaft; "AG") must exercise the diligence of a prudent and conscientious manager in the management of the company in accordance with Section 93 para 1 German Stock Corporation Act ("AktG"). Pursuant to Section 43 para 1 German Limited Liability Company Act (GmbHG) the same standard applies to the managing directors (Geschäftsführer) of a limited liability company ("GmbH").

The fact that the management of a company is "simply" not conceivable without a wide scope of action and the taking of certain entrepreneurial risks has also been recognized by the courts and legislators. As a result, the management board (Vorstand) of an AG was initially granted further room for maneuver by interpreting Section 93 AktG accordingly and later by including Section 93 para 1 sentence 2 AktG. Section 93 para 1 sentence 2 AktG provides that a breach of duty does not exist if the management board member (Vorstandsmitglied) could reasonably assume, when making a business decision, that he was acting in the best interest of the company on the basis of appropriate information (so-called business-judgement rule).

Managing directors (Geschäftsführer) of a GmbH, on the other hand, must first comply with any (lawful) instructions given by the shareholders, even if the instructions are (economically) damaging. However, if the managing director (Geschäftsführer) does not have to comply with the shareholders' will (e.g. in the absence of express instructions), the principles mentioned above apply accordingly, so that the managing director (Geschäftsführer) is also granted entrepreneurial discretionary powers.

2. During a crisis

Now, however, the question often arises as to what constitutes the "appropriate basis of information" required for the release of the management board (Vorstand) of an AG or the managing director (Geschäftsführer) of a GmbH pursuant to Section 93 para 1 sentence 2 AktG or the underlying principles. Thus, the current economic situation in the COVID-19 pandemic represents a unique exceptional situation not only for decision-makers, but also for economic and other experts. This is because information can become outdated within a very short time and it is well known that especially forecasts into the future are subject to considerable uncertainties. For example, no one can seriously estimate at the present whether the much feared "second wave of infection" will occur and what effect it will have, whether even renewed and possibly even more drastic restrictions on exit and contact will be necessary (with corresponding consequences for the economy and companies).

As part of the criminal investigation of transactions of HSH Nordbank during the financial crisis of 2017, the German Federal Supreme Court (Bundesgerichtshof; "BGH") also ruled that in order to meet the information obligation under Section 93 para 1 AktG, a member of the management board (Vorstandsmitglied) must in principle exhaust all sources of information of a factual and legal nature available in the specific decision situation. Only on this basis could the advantages and disadvantages of the existing options for action be carefully assessed and the identifiable risks taken into account (BGH NJW 2017, 578, 580). Accordingly, it is necessary, but also sufficient, for the management board (Vorstand) to obtain an "appropriate" factual basis, taking into account the time factor and weighing the costs and benefits of further information acquisition (BGH NJW 2017, 578, 580). It is not important that the decision was actually made on the basis of appropriate information and served the good of the company, rather it is sufficient that the management board was allowed to assume this "reasonably" at the time of the decision.

According to the ruling of the BGH, this standard of due diligence should not only apply to the application of corporate and liability law, but should also be relevant to the question of a possible criminal liability of the acting person under Section 266 StGB. If a decision-maker thus acts with the intention of reducing dangers from the outside that potentially threaten the existence of the company, this can be taken into account in the question of whether the conduct constitutes a punishable violation of the obligation to look after assets (Vermögensbetreuungspflicht) under Section 266 StGB.

These principles established at that time for business decisions during the 2017 financial crisis should also apply to decisions in the current COVID 19 crisis situation and give decision-makers the necessary freedom to make short-term and risky decisions even in the case of considerably uncertain future forecasts.

3. Recommendations

Therefore, we recommend that comprehensive information is always obtained, especially before the making of risky decisions, within the scope of the time and actually possible. As a purely precautionary measure, these should be documented in detail so that, if necessary, proof of compliance with the duty to inform can be provided.

Managing directors (Geschäftsführer) of a GmbH also have the option of presenting any decisions to the shareholders' meeting in order to avoid possible liability in this way too.

Ultimately, however, all transaction decisions are individual cases, which are also regularly considered as such by the courts. Therefore, despite the above-mentioned case law, it cannot be ruled out that a deciding judge in an individual case may consider the information obtained in advance by a decision-maker to be insufficient.

Therefore, please feel free to contact us if you have any questions regarding possible liability due to past or upcoming transactions or other decisions relevant to your company. Our Schalast Teams at our offices in Frankfurt am Main, Hamburg and Berlin are happy to provide you with reliable support in any situation.