The case before the German Federal Court of Justice
A managing director of the limited partner GmbH of a GmbH & Co. KG had granted loans to another company without the loans being sufficiently secured.
The loan recipient then went bankrupt and there was no collateral. As a consequence, defaulting on the loans caused financial damage to the GmbH & Co. KG and resulted in the GmbH & Co. KG also going bankrupt.
After insolvency proceedings against the assets of the GmbH & Co. KG had been initiated, the insolvency administrator then sued the managing director of the limited partner GmbH for damages pursuant to Section 43 (2) of the German Limited Liability Companies Act (GmbHG), arguing negligent management.
The dispute ultimately ended up before the German Federal Court of Justice (BGH).
In addition, the GmbH of the manager who was sued was not only the limited partner of the plaintiff GmbH & Co. KG but was also active on behalf of other GmbH & Co. KG companies. At the same time, the defendant managing director was not personally responsible for the operations of the plaintiff GmbH & Co. KG due to the internal business organization.
Extension of case law to limited partner GmbH companies
With this ruling, the BGH has extended its case law regarding the general partner GmbH to include the limited partner GmbH.
As a consequence, a GmbH & Co. KG can now also claim damages for negligent management against the managing director of the limited partner GmbH. Even in this constellation, the managing director is now liable pursuant to Section 43 (2) of the German Limited Liability Companies Act (GmbHG) in combination with the principles of the contract with protective effect to the benefit of third parties.
If the limited partner GmbH conducts the business of the GmbH & Co. KG, the GmbH & Co. KG is influenced by the management activities of the GmbH. Furthermore, management errors on the part of the GmbH have a negative impact on the GmbH & Co. KG.
Moreover, a claim arising from the contract with protective effect to the benefit of third parties is a fundamental necessity: without its own management authority, the GmbH & Co. KG would be entirely at the mercy of the GmbH and its managing director. It would not have any protection or entitlement to claims if the limited partner GmbH held sole power of management.
GmbH as a limited partner of multiple GmbH & Co. KG companies
Does the fact that the GmbH is active on behalf of multiple limited partnerships as a limited partner change this assessment? No, ruled the BGH and also clarified that even if a managing director is not directly responsible for a specific limited partnership within this type of business model due to the internal business organization, they may be held personally liable. The general responsibility of a managing director means that managing directors are required to monitor the affairs of the GmbH as a whole. Precisely in constellations of this nature, liability must not be limited because the managing director is allegedly not responsible.
Summary of the key facts:
- Managing directors of a limited partner GmbH are liable to a GmbH & Co. KG for damages more extensively than in the past in the event of legal violations and breaches duty.
- This applies even if the GmbH serves as the limited partner on behalf of multiple GmbH & Co. KG companies.
- Even internal directives removing responsibility for a particular GmbH & Co. KG in the case of multiple managing directors of the GmbH does not change this situation.
