BGH – Managing directors acting as front men can also be held liable

Formal managing directors who are only appointed to act as front men are subject to criminal liability as well. This was reaffirmed by the Bundesgerichtshof (BGH), Germany“s Federal Supreme Court, in a ruling from October 13, 2016 (Az.: 3 StR 352/16).

A managing director who fails to fulfill his or her obligations may be held liable. There are many examples in practice of companies with a de facto managing director who is not registered in the commercial register but is effectively responsible for managing the business, and a formal managing director who barely has any internal responsibilities and serves merely as a front man. The managing director acting as a front man can nonetheless be held accountable under criminal law as well. We at the commercial law firm GRP Rainer Rechtsanwälte report that this principle has been reaffirmed by the Bundesgerichtshof.

In the case in question, the accused was the formal managing director of a Gesellschaft mit beschränkter Haftung, a type of German private limited liability company commonly known and referred to as a „GmbH“. In practice, business was conducted by another person. Charges were brought against the formal managing director because of the company“s failure to ensure proper payment of social security contributions.

The accused was registered as the sole managing director and appointed by way of a shareholder resolution. The BGH held that this status as formal managing director alone justified her being held accountable as a corporate body vis-à-vis third parties, which is why it had been her duty to ensure proper payment of social security contributions. The fact that there was another person with such extensive decision-making powers and responsibilities that they were viewed as the de facto managing director did not preclude this conclusion.

The Court went on to say that even if the formal managing director has no significant internal responsibilities and serves merely as a front man, this does not absolve him or her of criminal liability. A person who is formally appointed as managing director was said to have the capacity, both in law and in practice, to carry out the full scope of actions associated with this position at all times, with accountability stemming from his or her status as a corporate body. The BGH further ruled that even a managing director who is appointed only as a matter of form is not incapable of ensuring proper payment of social security contributions despite lacking responsibilities; if necessary, the managing director acting as a front man would have to turn to the courts for help in exercising his or her rights. Otherwise, he or she would have to resign from their post.

Lawyers who are experienced in the field of company law can serve as qualified advisors in relation to matters concerning the liability of managing directors.

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GRP Rainer LLP www.grprainer.com/en/ is an international firm of lawyers and tax advisors who are specialists in commercial law. The firm counsels commercial and industrial companies and corporations, as well as associations, small- and mid-sized businesses, self-employed freelancers and private individuals worldwide from offices Cologne, Berlin, Bonn, Dusseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London UK.

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