Background
The insolvency administrator of a German limited liability company (GmbH) sought indemnity from the company’s D&O insurer in respect of claims against the former managing director pursuant to section 64 sentence 1 of the former German Limited Liability Companies Act (GmbHG), now section 15b of the German Insolvency Code (InsO).
Liability arises where a managing director continues to make payments out of the company’s assets after the company has become insolvent, unless such payments are, exceptionally, compatible with the standard of care of a prudent managing director.
In the present case, the managing director had continued to make payments after the company had become illiquid. The insurer declined cover, relying on the exclusion for deliberate breach of duty.
Decision
The Frankfurt Higher Regional Court set aside the first instance judgment and dismissed the claim. In the court’s view, the managing director had committed a breach of a core duty, as he failed to file for insolvency despite the company’s manifest insolvency and continued to carry on the business.
A deliberate breach of duty exists where the managing director is aware of his obligation and consciously disregards it. The insurer may infer such awareness from objective circumstances, such as substantial tax and social security arrears or repeated enforcement threats.
The court emphasised that it forms part of the essential duties of a managing director of a GmbH to continuously monitor the company’s financial position and, where signs of a crisis emerge, to prepare a liquidity status. A director who proceeds “blindly into a crisis” breaches a fundamental duty.
The court further clarified that the prohibition on payments and the obligation to file for insolvency are closely interconnected. A breach of the duty to preserve the insolvency estate will, as a rule, result from a failure to file for insolvency and must likewise be regarded as a breach of a core duty.
Practical implications
For managing directors, the decision further refines their duties of care in times of financial distress. Even outside a crisis, managing directors are under a continuous obligation to keep themselves informed about the company’s financial situation. At the first indication of liquidity problems, an objective assessment of insolvency must be carried out.
Failure to do so exposes managing directors not only to personal liability under section 15b InsO, but also to the loss of D&O insurance cover.
For insolvency administrators, the judgment makes it more difficult to pursue indemnity claims against D&O insurers. Following the approach of the Frankfurt court, insurers may increasingly rely on the exclusion for breaches of core duties.
Conclusion
The Frankfurt Higher Regional Court confirms that the duty to file for insolvency and the prohibition on payments are central obligations of a managing director. A breach of these duties will typically result in the loss of insurance cover where the director ought to have recognised the company’s insolvency.
Companies and corporate officers should therefore review their internal early warning systems and crisis management processes and seek professional advice at an early stage.
According to as yet unconfirmed reports, the German Federal Court of Justice (Bundesgerichtshof) has rejected the legal approach taken by the Frankfurt court in a decision not yet published (judgment of 19 November 2025, case no. IV ZR 66/25). The Federal Court of Justice is said to have held that a delayed insolvency filing does not in itself constitute evidence of a deliberate breach of duty. Rather, it is for the D&O insurer to prove the requisite intent in order to deny cover.