New information on director’s liability

We last reported on the “perennial issue” of director’s liability according to Section 64 clause 1 Limited Liability Companies Act (GmbHG) in the November 2015 issue of our client information letter. That issue can be downloaded in the News area of our homepage.

To repeat: According to Section 64 (1) GmbHG, the director of the company is obligated to compensate the company for payments made after the company has become illiquid or after it is deemed to be over-indebted. Therefore, if payments are made after the company has become insolvent, the director is personally obligated to reimburse the relevant amounts to the GmbH. The same usually applies even if payments to the insolvent GmbH are received in debit-balance accounts.

In a current case, the company law division of the Federal Supreme Court (BGH) (II. Civil Division) had to deal again with the GmbH director’s liability according to Section 64 GmbHG (judgement dated 26 January 2016). The subject matter of the proceedings was the issue whether such payment of the GmbH according to Section 64 clause 1 GmbHG leads to the director’s liability if it is paid to a creditor who has a right to separate satisfaction and is secured with a company collateral. This was based on the following facts:

The insolvent GmbH held a debit-balance current overdraft facility account at its bank, with a credit facility of EUR 350k. Through blanket assignment contracts, the GmbH assigned all current and future trade accounts receivable to the bank in order to secure all current, future and conditional claims arising from the banking business relationship. The applicant insolvency administrator now requested, according to Section 64 clause 1 GmbHG, compensation amounting to approx. EUR 1.2 million due to payments received in the debit-balance current overdraft facility account amounting to approx. EUR 700k and payments made from the account of approx. EUR 500k. The related account movements took place at the time the GmbH was already materially insolvent. The Regional Court (LG) and the Higher Regional Court (OLG) (both in Munich) decided in favour of the applicant to full extent. The OLG Munich explained that the defendant director had to reimburse the advance payments made from the account of the insolvent GmbH and that this was not changed by the fact that the account was on the debit side, as the current account balance was secured by the blanket assignment in favour of the bank. Due to the payments made from the account, the extent of the claims subject to the security agreement consequently increased at the expense of the other creditors. Furthermore, the defendant director also had to reimburse the payments received in the debtor’s account as from the time the company was on the brink of insolvency. The payment concept of Section 64 GmbHG also included payments of third party debtors to the debit account of the company. In this case, the director needed to make sure that the payments are made to a newly opened account on the credit side. The OLG dismissed the objection of the defendant director that there was no disadvantage to the creditors due to the assignment by way of security to the bank.

The BGH annulled the decision of the OLG Munich, referred the matter back and pointed out the following to the OLG Munich:

If a payment is made to a creditor who has a right to separate satisfaction and is secured with a company collateral, an exchange of assets is effected to the extent the company security is released due to the payment and is available to realisation in favour of all creditors. With such an exchange of assets, there is no payment detrimental to assets in the financial result. If the security consists of the assignment of receivables, the payment to the assignee (here: the bank) effects such an exchange of assets to the extent receivables of value assigned by way of security are released due to this process and are included in the assets of the company destined for the equal satisfaction of all creditors.

After the decision of the BGH already discussed in November 2015, the BGH limited the very extensive director’s liability according Section 64 clause 1 GmbHG again.