von Göler / Friedrich Isenbart / Section 43

Section 43 Directors' liability

(1) The directors shall conduct the company’s affairs with the due diligence of a prudent businessman.

(2) Directors who breach the duties incumbent upon them shall be severally and jointly liable to the company for any damage arising.

(3) In particular, they shall be obligated to compensate where payments have been made in contravention of section 30 from those company assets which are required to maintain the share capital or the company’s own shares have been purchased in contravention of the provisions set out in section 33. The provisions set out in section 9b (1) shall apply mutatis mutandis to a claim for compensation. Where compensation must be paid to satisfy the company’s creditors, the directors’ obligation shall not be abrogated on account of the fact that they acted in compliance with a resolution passed by the shareholders.

(4) The claims based on the aforementioned provisions shall become statute-barred after five years.

Information for non-professionals

To Information for legal professionals

Relevance for legal relations

Section 43 GmbHG (German Limited Liability Companies Act) is a central norm which governs the relationship between the company and its directors.

Section 43 I GmbHG contains a standard of due care for the director. In addition, section 43 I GmbHG regulates – in the form of a blanket clause – the director’s general duties of conduct.

In case of a breach of these general duties or in case of a breach of any specific duty of conduct, section 43 II and III GmbHG contain the basis for the company’s claim against the director.

In the following, an overview is given from the different perspectives of the director, the company, the company’s shareholders and third parties.

11) Section 43 GmbHG from the director’s perspective

a) Standard of due care

According to the general standard of due care set forth in section 43 I GmbHG, the director must apply the care of a prudent businessman when conducting the company’s affairs. Adjustments of this standard of due care are possible within certain limits. The director’s liability for intent and gross negligence may not be excluded. Likewise, liability claims based on the disbursement of company assets required to maintain the share capital in contravention of section 30 GmbHG and due to the purchase of the company’s own shares in contravention of section 33 GmbHG may not be excluded.

b) General duties of conduct of the director

2aa) Duty to manage the company duly and properly

The director is obliged to manage the company’s affairs duly and properly. He has to take advantages on behalf of the company and avert damages from the company.

For managerial decisions, the director is allowed some scope of discretion. However, it is required that he is not in a situation of conflict of interest, aligns his decision with the best interest of the company and decides on the basis of sufficient information. According to case law, there is a duty to exhaust all sources of information available.

3bb) Organizational duty

The director is obliged to organize the company in a way that best serves the company’s purpose. At any given time, the director must have an overview of the economic and financial situation of the company and must implement a control system to detect and supervise potential risks if necessary.

Each director is individually responsible for the management of the company as a whole and for the concerns of the company. An internal allocation of responsibilities (by creating individual departments) changes the specific duties of each director. By allocating the duties to individual departments, those directors who are not in charge of the respective department are responsible for monitoring the fulfillment of the tasks in this department. Consequently, each director has to monitor those departments which fall within the responsibility of other directors.

4cc) Duty of legality      

The directors have to comply with laws, articles of association and the resolutions of other corporate bodies. They have to ensure that the company personnel do not commit any breaches of duty. In certain cases, compliance with foreign laws may be required as well.

By organizational measures, the directors have to ensure that the company acts according to law. An increased risk potential may give rise to a duty to implement a compliance system.

5dd) Duty of loyalty

The directors have a duty of loyalty vis-à-vis the company and have to align their conduct with the company’s best interest. The directors may not disclose company and business secrets as well as other confidential information to third parties.

6c) Liability of the director according to section 43 II GmbHG

According to section 43 II GmbHG, the directors are liable for breaches of their duties towards the company. The liability of the director may also be caused by a breach of duty of a third person if the director did not duly choose his employees, or if he did not mentor and supervise them properly.

If several directors are responsible for the damage occurred, they are jointly liable.

In general, there is no breach of duty if the director acts on the basis of an instruction of the competent corporate body. This usually requires a formal shareholders’ resolution. Void resolutions do not relieve the director; as long as resolutions are voidable, they also do not relieve the director.

7d) The director’s liability according to section 43 III GmbHG

According to section 43 III 1 GmbHG, the director is liable if the company makes payments in contravention of section 30 GmbHG from those company assets which are required to maintain the share capital, or if the company purchases own shares in contravention of the provisions set out in section 33.

According to section 43 III 3 GmbHG, the director is liable even if he committed the infringement of sections 30, 33 GmbHG in compliance with an instruction of the shareholders.

8e) Limitation

Claims for compensation resulting from section 43 II and III GmbHG are subject to limitation after five years. For the commencement of the limitation period, it is not relevant whether the company or the shareholders knew about the director’s breach of duty. There are special provisions for claims of banks against their directors.

9f) Requirement of a shareholders’ resolution, discharge of the director

For the assertion of claims resulting from section 43 II and III GmbHG, a shareholders’ resolution is required. This also applies to claims against former directors.

By formal discharge of the director, the company loses its claims against the director to the extent potential claims were recognizable to the shareholders’ meeting, or if all shareholders had knowledge of such claims.

10g) Liability of the director towards third parties

Section 43 GmbHG is exclusively applicable to the relationship between the company and its directors. Shareholders and third parties may not derive claims from section 43 II or III GmbHG against the directors. However, claims of third parties against the director may arise from other legal grounds (e.g. from contract, from a guarantee, from contract negotiations, from the principle of prima facie liability and from tort).

11h) Release from liability and D&O-insurance

The director’s high risks of liability may be limited by a release from liability by the shareholders or third parties as well as by means of a D&O insurance policy. The D&O insurance policy is usually concluded by the company for the director.

2) Section 43 GmbHG from the company’s perspective

12a) Liability of the director according to section 43 II GmbHG

From the company’s perspective, section 43 II GmbHG is the basis for claims against the director in case the director breaches a duty towards the company.

For a claim according to section 43 II GmbHG, the company has to show and prove the director’s appointment, his behavior which caused the breach of duty, the damage and the connection between the breach of duty and the damage. In certain cases (e.g. in case of miscalculations), the company does not have to show and prove anything concerning the breach of duty (but only concerning the damage occurred).

In general, there is no breach of duty if the director acts on the basis of an instruction of the competent corporate body. This usually requires a formal shareholders’ resolution. Void resolutions do not relieve the director; as long as resolutions are voidable, they also do not relieve the director.

13b) Director’s liability according to section 43 III GmbHG

Section 43 III 1 GmbHG represents a specific claim which requires a simplified documentation of the damage and contains limited powers to waive and settle.

According to section 43 III 1 GmbHG, the director is liable if the company makes payments in contravention of section 30 GmbHG from those company assets which are required to maintain the share capital, or if the company purchases own shares in contravention of the provisions set out in section 33 GmbHG.

According to section 43 III 3 GmbHG, the director is liable even if he committed the infringement of sections 30, 33 GmbHG in compliance with an instruction of the shareholders.

14c) Adaptation of the standard of due care

According to the general standard of due care of section 43 I GmbHG, the director shall apply the care of a prudent businessman when conducting the company’s affairs. Adjustments of this standard of due care are possible within certain limits. The liability of the director for intent and gross negligence may not be excluded. Likewise, liability claims based on the disbursement of company assets required to maintain the share capital in contravention of section 30 GmbHG and due to the purchase of the company’s own shares in contravention of section 33 GmbHG may not be excluded.

15d) Limitation

Claims for compensation resulting from section 43 II and III GmbHG are subject to limitation after five years. For the commencement of the limitation period, it is not relevant whether the company or the shareholders knew about the director’s breach of duty. There are special provisions referring to claims of banks against their directors.

16e) Requirement of a shareholders’ resolution, discharge of the director

For the assertion of claims resulting from section 43 II and III GmbHG, a shareholders’ resolution is required. This also applies to claims against former directors.

By formal discharge of the director, the company loses its claims against the director to the extent potential claims were recognizable to the shareholders’ meeting, or if all shareholders had knowledge of such claims.

3) Section 43 GmbHG from the shareholder’s perspective

17a) Liability of the director according to section 43 II, III GmbHG

Section 43 GmbHG only applies to the relationship between the company and its directors.

The company’s shareholders may not derive claims from section 43 II, III GmbHG against the company’s directors. However, a liability of the director towards the company’s shareholders may result from other legal norms (e.g. section 31 VI GmbHG in conjunction with section 31 III GmbHG).

In general, there is no breach of duty within the scope of section 43 II GmbHG if the competent corporate body instructs the director to act in a certain way. This usually requires a formal shareholders’ resolution. Void resolutions do not relieve the director; as long as resolutions are voidable, they also do not relieve the director.

18b) Requirement of a shareholders’ resolution, discharge of the director

For the assertion of claims resulting from section 43 II and III GmbHG, a shareholders’ resolution is required. This also applies to claims against former directors.

By formal discharge of the director, the company loses its claims against the director to the extent potential claims were recognizable to the shareholders’ meeting, or if all shareholders had knowledge of such claims.

194) Section 43 GmbHG from a third party’s perspective

Section 43 GmbHG only applies to the relationship between the company and its directors.

Third parties may not derive claims against the director either directly from section 43 II, III GmbHG or in conjunction with section 823 II BGB. If the director breaches a duty, third parties only have a claim against the company, which assumes responsibility for the director’s conduct according to section 31 BGB.

However, claims of third parties against the director may derive from contract, for example from a promise of guarantee, from contract negotiations (section 311 III BGB in conjunction with section 280 I BGB), from the principles of prima facie liability as well as from tort (section 823 I BGB, section 823 II BGB in conjunction with a protective law and section 826 BGB).

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Information for legal professionals

1) General

20a) Ratio legis

Section 43 GmbHG is a central norm governing the relationship between the company and its directors. It sets up a standard of care for directorsBeckOK GmbHG/Haas/Ziemons, section 43 GmbHG recital 1; MüKo/Fleischer, section 43 GmbHG recital 1 and also contains the basis for liability in case of a breach of duties by the director.

2) Definitions

23a) Duty of care according to section 43 I

Section 43 I GmbHG contains a standard of due care for directors. Furthermore, section 43 I GmbHG regulates – in the form of a blanket clause – the director’s general duties of conduct.KG Berlin, NZG 1999, 400; MüKo/Fleischer, section 43 GmbHG recital 10; Bork/Schäfer/Klöhn, section 43 GmbHG recital 1; differently Baumbach/Hueck/Zöllner

3) Frequently used (chains of) clauses

Sec. 43 II GmbHG, sec. 421 et seqq. BGB; sec. 43 II GmbHG, sections 249 et seqq. BGB; sec. 43 III GmbHG, sections 249 et seqq BGB; sections 43 III, 30 GmbHG; sections 43 III, 33 GmbHG; sections 43 II, 46 No. 5 GmbHG; sections 43 III, 46 No. 5 GmbHG; sections 43 II, 46 No. 8 GmbHG; sections 43 III, 46 No. 8 GmbHG; sections 43 III, 64 GmbHG; sections 43 IV, 64 GmbHG; sections 43 I, 71 GmbHG; sections 43 II, 71 GmbHG; sections 43 IV, 71 GmbHG; sections 43 III, 71 GmbHG

4) Procedural details

47An interruption of the limitation period (suspension and recommencement) is governed by sections 203 et seqq. BGB. A claims letter sent to the director is not sufficient to interrupt the limitation period. Instead, one of the measures listed in sec. 204 II BGB has to be taken (especially the bringing of an action or the service of a demand for payment in summary proceedings for recovery of debt).

The company’s claims against the director must – to the extent possible – be asserted by means of an action for performance.Zöller/Gregor, before sec. 253 ZPO (German Code of Civil Procedure), recital 3 If permissible (sec. 256 ZPO (German Code of Civil Procedure)), an action for declaratory judgment interrupts the limitation period as well. However, an action against the director is only well founded if a shareholders’ resolution according to sec. 46 No. 8 GmbHG for the bringing of such action exists. The resolution may be passed until the close of the hearing.BGH NZG 1999, 722 (722)


Footnotes