Liability under company law
Below is a rough overview of possible cases of liability, which is not exhaustive.
In principle, it is only the company itself, with all of its corporate assets, that is liable for corporate debts. A managing director of a GmbH is generally not liable towards the company or third parties. The same also applies to members of the board of an AG.
Liability towards the company (‘internal liability’)
Due diligence of a prudent businessman
The managing director or a member of the board has a duty towards the company to apply the due diligence of a prudent manager in its business management. This is an objective standard of due diligence, which is not restricted by personal inability, for example. The specific requirements of due diligence vary according to the company’s size and sectoral affiliation. There is no strict liability, however. Where several business managers or members of the board have acted contrary to the requirements of due diligence, they are jointly and severally liable towards the company. The aggrieved party can therefore choose from which board member to claim liability for the overall damage. However, he/she may only claim the benefit once overall. A proportionate right of recourse against all those responsible is possible.
A managing director or a member of the board is liable, in particular, if
- company assets are distributed against the provisions of the GmbH-Gesetz (Limited Liability Companies Act) and the Aktiengesetz (Stock Corporation Act) (e.g. through unlawful dividends or through the repayment of deposits); or
- they make payments at a time when they should have already initiated insolvency proceedings.
Business Judgement Rule (BJR)
What is known as the Business Judgement Rule (BJR) protects decision-makers from an excessive liability risk by allowing freedom from liability despite mistakes having been made, in principle, if certain criteria are met.
In accordance with the rule (BJR) enshrined by law in the GmbH-Gesetz (Limited Liability Companies Act) and the Aktiengesetz (Stock Corporation Act), managing directors and members of the board are acting in accordance with the due diligence of a prudent businessman if they:
- do not allow themselves to be guided by extraneous interests when making business decisions (the interests of the company are of primary relevance);
- make these decisions on the basis of appropriate information (i.e. develop a basis for decision-making, optionally also in consultation with specialists); and
- on this basis, they may reasonably be assumed to be acting for the benefit of the company (good faith).
On this basis, it is advisable to document the basis for decision-making. If, in a dispute, it can be proven that the BJR was observed, liability under company law can generally be ruled out.
Liability towards third parties (‘external liability’)
Direct liability towards third parties (e.g. shareholders, creditors or authorities) is the exception, although it can exist on the basis of specific legislation (e.g. the Bundesabgabenordnung/Federal Fiscal Code) or on the basis of provisions on creditor protection.
Under the Aktiengesetz (Stock Corporation Act), for example, shareholder creditors may also assert the company’s claim for compensation, provided that they are unable to obtain satisfaction (payment) from the company. A further requirement is that the members of the board must either have violated particularly important provisions of the Stock Corporation Act or grossly breached the duty of due diligence of a prudent and conscientious manager (i.e. acted in a grossly negligent manner).
Under the provisions of insolvency law, members of the board or managing directors are liable towards creditors if the latter incur damages as a result of a culpable delay in initiating insolvency proceedings. They are also liable up to the amount of EUR 4 000 for the costs of initiating insolvency proceedings. Further information on insolvency in particular the impairment of creditors’ interests and the enforcement of insolvency claims from the perspective of creditors can also be found at USP.gv.at.
- Stock corporation – FAQ: What form does liability take in an AG? (→ WKO)German Text
- GmbH – FAQ: What form does liability take in a GmbH? (→ WKO)German Text
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