I. Obligation to conduct business

With the appointment to the position of a managing director of a GmbH, the managing director of a GmbH assumes the position of an organ which is under the obligation to conduct the business of the GmbH with the accurateness of a prudent businessman. This scale results from the central liability standard for managing directors, section 43 para. 1 Law on Limited Liability Companies [Gesetz betreffend die Gesellschaft mit beschränkter Haftung – GmbHG]. The obligation to manage the company applies to all members of the management to full extent. In this respect, the so-called principle of full responsibility applies to cases where there is more than one managing director.

II. Admissibility and limits of allocation of duties or departments between several managing directors of a GmbH

The principle of full responsibility of several managing directors of a GmbH, however, does not exclude the admissibility of an allocation of duties or departments. The BGH took its judgment of 6 November 2018 (file no. II ZR 11/17) as an opportunity to substantiate the formal and content-related requirements for an allocation of duties and at the same define the scope of management duties of each managing director.

1. Facts of the case

In the case to be decided by the BGH, the suing insolvency administrator sought reimbursement of payments from one of the two managing directors which were made by the company to its creditors after the occurrence of the GmbH’s insolvency, The initial basis for the decision was thus the liability of the managing director pursuant to section 64 sentence 1 GmbHG (former section 64 para. 2 sentence 2 GmbHG old version.). The claimed managing director had previously presented an exonerating evidence for the conviction of the previous instance (Court of Appeal, Berlin), according to which he did not know about the company’s insolvency in an unaccusable manner despite an adequate organization of the management. This was because, due to the distribution of responsibilities in the management of the company, only the second managing director took care of commercial, organizational and financial matters, whereas the defendant was solely responsible for artistic matters in the company (a company producing a television series). In particular, the second managing director had deliberately not disclosed the economic situation of the company to the defendant.

2. Reasons for the decision

The BGH has annulled the decision of the previous instance and has referred back the case for further clarification of the facts and a renewed decision. According to the BGH, the defendant did not present the exonerating evidence in a sufficient manner. This opinion was based in the fact that the managing director “has to provide for an organization which enables him at any time an overview of the economic and financial situation of the company which is necessary for carrying out his duties” according to consistent case-law. In this particular case it would have been necessary to examine more closely whether the defendant as a managing director did sufficiently carry out his duties of continuously monitoring the economic situation of the company and any critical indications. According to the BGH, this duty of monitoring had to be assessed under full consideration of the circumstances which are relevant in an economic sense for the company.
The BGH made it clear that a managing director’s personal responsibility to fulfill the duty to file insolvency was not excluded by a collaborative action at management level. Because also an admissible allocation of management tasks would not release such managing director who was only assigned certain tasks afterwards from his own responsibility to properly manage the business of the company. This would especially apply in view of the non-transferable tasks, such as the warranty obligation of a managing director for the legality of the company’s management. A strict standard was to be applied in these cases to the fulfillment of the control and monitoring duties towards fellow managing directors, which were particularly extensive in these cases.
The BGH criticizes the decision of the previous instance that it had not sufficiently examined the existence of an effective allocation of responsibilities between the defendant and his fellow managing director. Against this background, the BGH clarifies that a clear and unambiguous delimitation of management tasks on the level of the management of a GmbH on the basis of an assignment of tasks supported by all members of the body is a prerequisite for the allocation of responsibilities or departments. In addition, this allocation of responsibilities requires the complete performance of management tasks by persons who are technically and personally suitable for this purpose and who – irrespective of the responsibility of an individual managing director – exercise the responsibility of the entire body, in particular for matters of management that cannot be delegated.
Only if there is such a clear and unambiguous division of all management tasks the duty of the managing director to perform tasks himself is transformed into a duty to supervise the fellow managing director. With reference to the duty of the managing director to whom a certain task has been assigned, the BGH further states that such an allocation of responsibilities constitutes the duty of the responsible managing director to keep the other managing directors informed of the essential affairs of the company. In addition, each managing director of a GmbH must regularly ensure that each of the other managing directors is suitable to carry out the tasks assigned to him. According to the BGH, if these conditions are met, the other managing directors can assume, without express regulation, that they will receive reliable and timely information from the managing director responsible, which is necessary for the personal performance of each managing director’s duties.
Such a permissible allocation of responsibilities or departments does not necessarily require the written form or an explicit agreement, even if the BGH notes that written documentation is usually the obvious and appropriate means of clearly defining the tasks. The BGH clarified that – contrary to an opinion held in legal literature – the effective limitation of the area of responsibility of a managing director does not require a written allocation of tasks. That opinion in the literature is based on the case-law of the Federal Finance Court [Bundesfinanzhof] concerning the performance of tax obligations by the managing directors of a GmbH, from which the BGH does not deviate in its decision, since the decision of the Bundesfinanzhof expressly concerns the performance of tasks under the German Fiscal Code [Abgabenordnung] by the managing directors and thus the public-law obligations. There is a lack of a clear legal formal requirement for an assessment under civil law of the formal requirement for the allocation of departments. In addition, it could not be generally assumed that a written fixation of the allocation of responsibilities was always a mandatory prerequisite for ensuring prudent company management. On the contrary, the BGH assumes that the allocation of responsibilities based on a factual division of labor or an implied agreement can also be strengthened by its actual application in order to achieve a task allocation that meets the requirements described.
Against this background, the BGH considered the scope of the examination and the assessment of the facts by the appellate court to be insufficient. In particular, the defendant, as a managing director of the company, failed to properly supervise his fellow managing director. Although there were regular meetings between the managing directors and the fact that the co-managing director responsible for financial matters did not fulfil his duty to provide information made it more difficult for the defendant to identify that the company was close to insolvency or had become insolvent. The BGH clarifies that meetings themselves can only provide the framework for the information of the other managing directors by the responsible managing director, but do not constitute an instrument for controlling the proper execution of tasks in the department of the responsible managing director. In fact, the defendant would have had to form his own impression of the business area on the basis of the concrete contents of the meetings and with specific questions. According to the BGH, this regularly requires at least a plausibility check of the company’s key business figures, for example in the form of business analyses. In this decision, the BGH did not consider the annual review of the business figures carried out by the managing director responsible for the artistic area of the company to be sufficient.
In addition, there had been irregularities in the performance of management duties by the managing director responsible for the commercial area of the company which should have caught the attention of the defendant. Evidence or circumstantial evidence of irregularities or even a crisis in the company should have been the reason for the defendant’s tighter control and supervision of the responsible managing director.

III. Consequences for the practice

1. Written form recommended

Despite the BGH’s decision on the freedom of form for the allocation of responsibilities and departments, it is advisable in GmbHs with several managing directors to whom different departments are allocated to establish the allocation of responsibilities in writing. Only a written definition of the exact responsibilities of the individual managing directors of a GmbH ensures the recognizability of the assignment of tasks and the control of the professional and personal suitability of the respective managing director for the fulfillment of the tasks assigned to him in the current course of business. In addition, a written definition serves to facilitate the burden of proof in liability proceedings, as in the herein presented case decided by the BGH.

2. Prerequisite for an admissible allocation of responsibilities

An admissible allocation of responsibilities at management level presupposes a clear and unambiguous delimitation of management tasks which must be supported by all members of the body. The allocation of responsibilities must ensure that management tasks are fully performed by persons who are professionally and personally suitable for this purpose. In addition, the existing responsibility of the entire company’s management for non-delegable management matters – irrespective of the responsibility of individual managing directors – must be maintained at the same time. The non-delegable duties include, for example, the legality of the company’s management.

3. Duties of the managing directors in the case of allocation of responsibilities

Each managing director must support the allocation of responsibilities and regularly check the suitability of his fellow managing directors to perform the tasks assigned to them. If, against this background, the managing directors can assume that their duties will be properly performed, the assignment of responsibility for certain tasks results in the duty of the responsible managing director to keep his fellow managing directors continuously informed about the essential affairs of the company in this area. If the managing director responsible according to the allocation of responsibilities fails to inform his fellow managing directors, the latter are obliged, on the basis of the principle of full responsibility, to intensively monitor and supervise the managing director responsible according to the allocation of responsibilities. Which control and monitoring measures are required will depend on the respective department and must be reserved for a case-by-case examination.