From poor decision-making and a lack of due diligence to ignorance of the proper course of action in crisis situations—there are many scenarios in which managing directors risk being held personally liable by creditors or the company. The risk of personal liability has even increased in recent years due to numerous court rulings. For example, a managing director who fails to prevent salary payments to his co-managing director that are clearly in breach of his duties makes himself personally liable to the company. Due to the increased duty of oversight, companies can no longer afford to be lenient toward misconduct by their executives. However, managing directors are often unaware of their comprehensive duties of care. Ignorance alone, however, is no justification: Case law repeatedly emphasizes that managing directors must acquire the necessary knowledge to fulfill their management duties even before assuming office, as the duty of care takes effect on the first day they assume their position. Prospective managing directors, therefore, should inform themselves in detail about their future responsibilities. Comprehensive documentation also ensures that compliance with these duties can be demonstrated in the event of a crisis. This is particularly necessary when making far-reaching business decisions and helps to refute initial allegations from the outset.
Discharge from Liability—But Done Right
The discharge of the managing director, which is customary upon the presentation of annual financial statements, is also of great importance. While it is generally not a blank check that results in the loss of all claims against the managing director, However, a properly drafted resolution by the shareholders granting discharge creates legal certainty and serves as an important limitation of liability for the managing director. Measures to limit liability and protect assets, in turn, should be implemented early on. Once a liability issue arises, it is usually too late to take such steps. A preventive risk management and compliance system, for example, is one way to meet the legally required duty of organization. Another of many building blocks on the path to comprehensive liability limitation is directors’ and officers’ (D&O) liability insurance. To mitigate the risk of a reach-through to personal assets, provisions for liability limitation in the employment contract, a legally sound allocation of responsibilities among multiple managing directors, and other measures are necessary.
Key Points at a Glance
1. Managing directors are often unaware of their comprehensive duty of care.
2. A properly drafted resolution by the shareholders granting discharge provides legal certainty.
3. You can find a job as a managing director on the DUB Managing Director Job Board.
