Company managers bear a high level of not only responsibility but also risk. Various measures can be taken to reduce the risk of directors’ and officers’ (D&O) liability.
When a crisis or insolvency occurs, the manager’s accountability and thus also his personal liability are issues that ever more rapidly take centre stage. Liability claims directed at executive boards, supervisory boards or managing directors can arise even in cases involving simple negligence. These can result in claims for damages or compensation against the executive bodies. We at the commercial law firm GRP Rainer Rechtsanwälte note that since such claims typically entail large sums of money they can jeopardize the existence of the companies concerned. Compounding the matter is the fact that there is a shift in the burden of proof in cases involving claims brought by a company against its own executive bodies, i.e. managers need to demonstrate that they properly fulfilled their duties.
Liability cases can arise if, for instance, taxes or social security contributions were not properly paid, disclosure and reporting obligations were infringed or executive bodies can be accused of misconduct in relation to the crisis or insolvency.
That being said, it is possible to reduce the risk of personal liability by taking appropriate measures. It is important to first of all carry out an assessment into the risk of personal liability. Additionally, one needs to keep in mind the risk of liability as early as when drafting employment contracts for managing directors, service contracts as well as any rules of procedure, and whenever possible make arrangements to limit liability.
A D&O insurance policy should also be taken out for the executive bodies, with this being tailored to the individual liability risks. This ought to deal with the insured sum as well as both retroactive and run-off coverage.
Another key element to reducing the risk of liability is to set up an effective compliance management system to ensure that statutory and contractual provisions are observed by all of the employees at the company in question.
Lawyers who are experienced in the field of company law can assess the risks as they pertain to managers’ liability and take appropriate steps to substantially reduce this risk. If claims are nevertheless raised against the executive bodies, all legal measures can be taken to fend off or, conversely, enforce said claims.