Even if D&O insurance policy has been taken out, managing directors and executive board members may be held liable for reimbursement of forbidden payments after factual insolvency of the company. This follows from a decision of the German federal supreme court (BGH) according to which the insolvency administrator is not obliged to maintain D&O insurance cover after commencement of insolvency proceedings over the company’s estate. In the case at issue the managing director had permitted that payments of more than EUR 2.7 million were made into the company’s account after the company was factually insolvent. The bank set off this sum against an existing debit balance. Therefore, the insolvency administrator claimed payment of the amount from the managing director arguing that this constituted a forbidden payment during factual insolvency according to German corporate law. Since the insolvency administrator had terminated the D&O insurance policy taken out for the managing director, which would have covered respective payment claims, the managing director in turn asserted claims for damages against the insolvency administrator.

In its decision the BGH rejected damage claims of the managing director and argued that there is no obligation of an insolvency administrator to maintain a D&O insurance policy. The duties of an insolvency administrator exist only for the benefit of creditors and the insolvency debtor itself, but not for the benefit the debtor’s corporate organs. While protection of creditors interests may require to uphold liability insurance cover for the managing director, if due to a lack of financial means claims cannot be successfully asserted against the managing director, no obligation exists to provide for insurance cover at the estate’s expense in order to shield the managing director from potential liability.

The German text of the BGH’s decision may be found here. If you are interested in further information on this topic, please do not hesitate to contact Christine Oppenhoff.