Personal liability of the managing director for insolvency compensation payments in the event of late filing for insolvency
The decision of the Higher Regional Court (OLG) Koblenz of December 7, 2012 (Ref.: 6 U 175/06) emphatically highlights the special duties and risks to which the management of a company is exposed in the event of insolvency. At the heart of the decision is the question of whether and under what circumstances a managing director can be held personally liable to pay insolvency compensation to affected employees if the application for insolvency proceedings is not filed in time.
Background: Duties and responsibilities in times of crisis
Insolvency law stipulates that, in the event of insolvency or over-indebtedness of a corporation, the managing director is obliged to file an application to open insolvency proceedings without undue delay – at the latest within three weeks – (§ 15a InsO). Compliance with this deadline is of considerable legal significance. This serves in particular to protect the interests of creditors, but also to protect employees, whose claims for remuneration would otherwise be at risk.
Employees’ claims to insolvency compensation
If a company becomes insolvent, the law provides, among other things, for employees to receive insolvency compensation from the Federal Employment Agency. This compensation is intended to cover the loss of wage payments for the last three months prior to the opening of insolvency proceedings. The Federal Employment Agency then assumes the employees’ claims against the employer to the extent of the compensation paid. This often results in a substantial right of recourse against the company itself.
Piercing the corporate veil: Managing director’s liability in case of breach of duty
As a rule, liability is limited to the company’s assets. However, the OLG Koblenz clarified that in the event of culpable breach of the obligation to file for insolvency, personal liability of the management may be considered. In the case at hand, the managing director filed for insolvency several months after the company became insolvent. As a result of this culpable breach of duty, the Federal Employment Agency suffered a loss in the amount of the paid insolvency compensation, because these payments could have been avoided if the company had filed for insolvency in a timely manner and terminated the employment relationships.
Relevance of causality and the question of fault
The court found that holding the managing director personally liable requires that the occurrence of the loss was causally linked to the delayed filing for insolvency. Had the managing director filed for insolvency in due time and terminated the employment relationships, there would have been no claim to insolvency compensation for the period concerned. The managing director must therefore address the objection as to whether and to what extent his conduct was actually responsible for the loss.
Liability also depends on the managing director’s fault. Both intent and negligence are sufficient. If there is no evidence of fault, liability under general civil law principles may still apply.
Particularities in recourse by the Federal Employment Agency
As a consequence of its payments, the Federal Employment Agency is entitled to take action against the managing director insofar as the company’s assets are insufficient and there is a culpable breach of duty. This increases the risks for management in crisis situations, making careful monitoring of economic developments and timely review of the need to file for insolvency essential.
Significance of the decision for managing directors and companies
The decision of the OLG Koblenz impressively underlines that piercing the corporate veil and holding management personally liable in insolvency cases is not merely a theoretical risk, but can have concrete and far-reaching financial consequences. Liability is not limited to classic creditor-related losses, but explicitly includes reimbursement payments by the Federal Employment Agency to employees.
Companies and their management bodies are therefore obliged to recognize signs of crisis at an early stage, to monitor ongoing developments, and to strictly comply with insolvency law requirements if necessary. Otherwise, serious personal liability risks may arise – regardless of the company’s economic situation.
Note regarding the presumption of innocence and ongoing proceedings
It should be noted that any affected managing director against whom claims are asserted due to delayed filing for insolvency is considered innocent until all circumstances have been finally clarified by law. The legal principles presented are based on published decisions and may vary in individual cases.
Source reference
The judgment of the Higher Regional Court of Koblenz dated 07.12.2012 (Ref.: 6 U 175/06) and further information can be found at https://urteile.news/OLG-Koblenz6-U-17506Bei-verspaeteter-Insolvenzantragsstellung-ist-der-Geschaeftsfuehrer-zur-Zahlung-des-Insolvenzausfallgeldes-verpflichtet~N14876.
Conclusion and confidentiality notice
Given the complex liability situation in the event of delayed insolvency proceedings, it is advisable to gain clarity about possible risks and existing duties of action at an early stage. If you have any questions or uncertainties regarding the obligations to file for insolvency and personal liability, the lawyers at MTR Legal are happy to provide further information.
