The case: Missing balance sheet with costly consequences
The proceedings concerned a listed public limited company. The responsible board member published a half-yearly financial report without including the statutory balance sheet declaration.
The Federal Financial Supervisory Authority (BaFin) subsequently initiated administrative fine proceedings against the company and imposed a fine, including fees.
After paying the fine, the company went a step further: it sought reimbursement of the fine and the legal costs incurred from the former board member by way of internal recourse.
The decision of the Frankfurt Higher Regional Court
The Frankfurt Higher Regional Court confirmed, in principle, the possibility of such recourse.
In the court’s view, the duty to properly prepare and publish the balance sheet constitutes a strictly personal duty of the board of directors. If this duty is culpably breached and this results in financial loss to the company, a claim for compensation may arise under Section 93(2) of the German Stock Corporation Act (AktG).
Particularly noteworthy is the court’s finding that recourse is not precluded merely because the payment constitutes an administrative sanction. The public law system of fines and civil law liability of directors and officers are to be distinguished from one another and may coexist.
Why the decision is important in practice
The decision concerns far more than disclosure errors under capital markets law.
It illustrates a general principle:
If a member of a corporate body culpably breaches their statutory duties and this causes damage to the company, personal liability claims may arise as a result.
This applies in particular to areas such as:
- compliance and supervisory duties,
- capital market and disclosure obligations,
- data protection and IT compliance,
- Competition law,
- Anti-money laundering,
- Risk management and corporate organisation.
Small and medium-sized enterprises in particular often underestimate the personal liability of board members. The financial consequences can be significant.
D&O insurance does not provide automatic cover
Another aspect of the ruling deserves particular attention.
The Frankfurt Higher Regional Court makes it clear that the mere existence of D&O insurance does not in itself constitute grounds for a reduction in liability.
Board members should therefore not assume that every claim will automatically be covered by the insurance. The specific terms and conditions of the insurance policy and the circumstances of each individual case remain decisive.
Practical guide: What companies should check now
For board members
- Improve documentation of key decisions
- Regularly review compliance obligations
- Monitor reporting and disclosure obligations
For supervisory boards
- Regularly review compliance systems
- Identify areas of risk
- Ensure that monitoring is documented
For companies
- Review D&O cover
- Clearly define responsibilities
- Update compliance training
Conclusion
The decision of the Frankfurt Higher Regional Court once again highlights the growing importance of effective corporate governance.
Board members are not only liable for traditional financial losses. Under certain circumstances, fines and legal costs imposed on the company can also lead to personal liability risks.
For companies, the ruling should serve as a prompt to critically review existing compliance and control structures. For board members, the decision demonstrates once again that compliance is not only about protecting the company but also about safeguarding against personal liability.
The key points in brief
- Fines imposed on the company can trigger recourse claims against board members.
- The Frankfurt Higher Regional Court consistently distinguishes between public law sanctions and civil law liability of board members.
- A functioning compliance organisation reduces liability risks for companies and board members.
