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Management liability claims according to Sec. 64 German Act on Limited Liability Companies are not covered by D&O insurance

On July 20, 2018, the Higher Regional Court of Duesseldorf (case no. I-4 93/16) ruled that the pecuniary damage insurance for directors and officers (D&O insurance) does not cover management liability claims according to Sec. 64 German Act on Limited Liability Companies for unlawful payments made after the company has become insolvent. The claim under Sec. 64 German Act on Limited Liability Companies does not constitute a damage claim but rather a “sui generis compensation claim”. Payments made after insolvency do not damage the company which will be relieved from the respective obligation but the community of creditors. The D&O insurance is indeed not designed to protect the community of creditors. The judgement of the Higher Court of Duesseldorf has significant impacts. From the point of view of an insolvency administrator, in most cases, Sec. 64 German Act on Limited Liability Companies is the most attractive legal basis for claims against the management. He solely has to demonstrate that the company had been insolvent when the payment was made. The defences for the management are limited. Therefore, directors are highly recommended to seek professional advice when managing a distressed company. We will be pleased to consult you on this subject – just contact us!

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