Legal violations related to to delayed insolvency filings represent the most frequent basis for managerial liability claims. At the same time, the number of insolvency proceedings is once again on the rise. Likewise increasing is the number of court rulings dealing with directors' and officers' (D&O) liability and related insurance coverage issues. For this reason, our blog from time to time makes legal forays into practical aspects of delayed insolvency filing issues that may carry significant weight in court proceedings or settlement negotiations. The following post is the fifth in this series.
I. Section 15b German Insolvency Code (InsO): Starting Points
See Foray 1 dated August 20, 2024.
II. Legal Topographies of Insolvency: Questions Concerning Insolvency and Its Determination
See Foray 2 (October 6, 2024), Foray 3 (January 6, 2025), and Foray 4 (March 9, 2025).
III. Causation of Damage and Liability of the Former Managing Director
1. Damage within the Meaning of Section 15b InsO / Claims under Section 823(2) German Civil Code (BGB), Section 15a InsO
a) Overview
Damage as defined by Section 15b InsO refers to the dissipation of corporate assets. [i] Despite the legal complexities, this definition simplifies the insolvency administrator’s ability to pursue claims compared to Section 823(2) BGB in conjunction with Section 15a InsO (late filing of the insolvency petition). Under the latter provisions, damages cannot simply be equated with the sum of payments made after the company became insolvent but before the petition was filed.
Under Section 823(2) BGB and Section 15a InsO, two distinct forms of damage are recognized: first, the so-called "quota damage" suffered by existing creditors, whose recovery diminishes due to the reduction of the insolvency estate caused by the late petition; and second, the "reliance damage" suffered by new creditors, who may claim to be placed in the financial position they would have occupied had the petition been filed in time—i.e., they would not have entered into the contract or delivered goods or services (negative interest).
As such, the calculation of quota damage must relate to the asset position of all pre-existing creditors, while reliance damage must be evaluated with regard to the financial position of each individual new creditor. In contrast to Section 15b InsO, where the damage relates to the estate as a whole, these damages depend on the circumstances of specific creditors and cannot be established independently of harm to those creditors. [ii]
Procedurally, the distinction is critical: quota damage qualifies as collective damage within the meaning of Section 92 InsO, which means that it cannot be asserted by the individual injured party, but only by the insolvency administrator. [iii] In contrast, reliance damage of new creditors cannot be pursued by the insolvency administrator, as it does not qualify as collective creditor damage. The negative interest of new creditors must therefore be determined individually, and standing to assert these individual claims lies with the new creditors themselves. [iv]
Demonstrating damage under Section 823(2) BGB and Section 15a InsO is therefore complex and demanding. [v]
b) The Federal Court of Justice (BGH) Judgment of July 24, 2024
In 2024, the BGH addressed the liability of a former managing director under Section 823(2) BGB and Section 15a InsO. The Court extended the causal link of the delayed insolvency petition to contracts concluded by new creditors even after the managing director had left office. [vi] This represents a significant expansion of liability.
In the case at issue, the plaintiff had entered into four contracts involving investments in sea freight containers with a company that was already insolvent. Three of these contracts were signed during the managing director’s term of office, and one thereafter, under a new management. The plaintiff sought damages for all four contracts on the basis of delayed insolvency filing. The BGH upheld the claim for all contracts, thereby ruling that liability is not limited to contracts concluded before the end of a director’s term.
The decision also addresses several related issues:
aa) Group Insolvency?
Remarkably, the plaintiff’s argument regarding overindebtedness was not based on the financial status of each individual distribution company, but rather on a “group-wide view.” The BGH upheld this approach, concurring with the Munich Higher Regional Court (OLG München), reasoning that such a perspective was justified due to the group-wide handling of business operations and liquidity management. Moreover, the plaintiff had submitted an expert opinion providing separate balance sheets for each German entity (para. 60).
Although German law does not recognize a concept of "group insolvency", Section 823(2) BGB and Section 15a InsO refer to the insolvency status of each individual company. The Court’s brief remarks do not signal a departure from this principle, especially since overindebtedness was ultimately established for each company individually.
bb) Ponzi Scheme as Grounds for Insolvency?
The BGH clarified that the mere classification of a business model as a Ponzi scheme does not in itself prove overindebtedness (para. 71). The lower court's finding of insolvency was based on the actual circumstances and documentation, not on the scheme’s inherent structure.
cc) Repurchase Obligations as a Reason for Over-Indebtedness
Surprisingly, the BGH also accepted that over-indebtedness could be derived from the companies’ obligation to repurchase the containers from investors.The court referred to a contractual clause that stated: "After the expiry of the guarantee period, [the company] is willing to repurchase the containers and will submit a purchase offer in due time before the contract expires" (paragraph 63). The BGH considered this sufficient, since the OLG Munich had justified the recognition of this obligation in the balance sheet by concluding that "certain contracts imposed a legal obligation on the distribution companies to repurchase the containers" (paragraph 62). This reasoning, however, is deficient: from a balance sheet and over-indebtedness perspective, the purchase of an asset—particularly at market value—constitutes merely an asset swap (accounting entry: "Cash to Fixed Assets").
Accordingly, the obligation to repurchase does not necessarily reduce the company's equity.
The cited contractual clause also does not suggest that the repurchase obligation entailed residual value risks, as the companies were only required to "submit an offer."
The situation might be different in the context of illiquidity if the containers could not be resold at the same price within three weeks. However, the BGH did not base its reasoning on insolvency due to illiquidity.Without more detailed knowledge of the case files, a definitive assessment is difficult, especially since the appellant did not contest the relevant findings of the OLG Munich on this point. Nonetheless, the BGH’s reasoning is logically inconsistent when viewed on its face.
dd) Procedural Obligations of the Court
This leads to another shortcoming of the Federal Court of Justice (BGH) ruling: The defendant had argued that the determination of over-indebtedness required special commercial and accounting expertise; the Court of Appeal should not have claimed this expertise for itself, but, according to the well-established case law of the BGH on the commercial balance sheet valuation of risk-laden receivables[vii], it should have called in an expert. According to the Second Civil Senate, however, this case law is "not readily transferable to the determination of a mathematical over-indebtedness." Rather, the decisive factors are the specific circumstances to be assessed in the individual case and the objections raised.In the case in dispute, the matter concerned "legal questions (the permissibility of cross-company consideration, the recognition of repurchase obligations as liabilities)" which, according to the court, could be answered without the assistance of an expert (para. 73). This is doubtful in view of the fact that the legal conclusions of the Second Civil Senate on the recognition of the repurchase obligation as a liability in the judgment, as outlined, are at least formulated in an unconvincing manner. The judgment suggests that both the Higher Regional Court (OLG) and the BGH overestimated their own expertise.
ee) The Battle Over the Facts
These points again highlight the central importance of "the battle over the facts" in litigation related to delayed insolvency filing. This battle must be fought vigorously at the trial level to avoid procedural disadvantages later on (cf. The judgment, paras. 65, 67/8).
c) Liability for contracts concluded after the managing director has left office
In its ruling, the Federal Court of Justice (BGH) also decided that, with the end of his corporate office, the managing director’s obligation to file for insolvency ceases, but any breaches of duty already committed are not retroactively nullified; rather, the managing director who has left office is, according to § 823 para. 2 of the German Civil Code (BGB) in conjunction with § 15a of the German Insolvency Code (InsO), "generally also liable for losses suffered by new creditors who only entered into contractual relationships with the company after his departure, if the risk situation caused by his breach of the duty to file for insolvency and resulting from the delay still existed at the time the damage occurred" (Headnote; Judgment, paras. 80 et seq.).
According to the BGH, the liability of a managing director who has left office due to delayed insolvency filing is "not generally" limited to losses that arose before the end of his term. Rather, the managing director who has left office is, pursuant to § 823 para. 2 BGB in conjunction with § 15a InsO, generally also liable for losses suffered by new creditors who only entered into contractual relationships with the company after his departure, "if the risk situation caused by his breach of the duty to file for insolvency and resulting from the delay still persisted at the time the damage occurred." Although the duties of the corporate office and thus also the obligation to file for insolvency "ex nunc" lapse with the end of the term, violations of the duty to file for insolvency that were already committed, according to the BGH, "are not retroactively nullified by the termination of the office, just as little as the managing director’s responsibility for losses from delayed insolvency proceedings that can be traced back to them." Therefore, the managing director is, in principle, also liable for losses due to delayed insolvency suffered by new creditors who only became contractual partners of the company after the termination of his office, if the risk situation caused by his breach of the duty to file for insolvency still persisted at the time the contract was concluded and was thus a (contributing) cause of the delayed insolvency loss.
Here, the BGH initially refers in textbook fashion to the theory of equivalence: because if an insolvency petition had been filed, these contracts would no longer have been concluded. The delay is also adequately causal, because the failure to file for insolvency "is generally capable — and not only under particularly peculiar, improbable, and, according to the ordinary course of events, negligible circumstances — of leading to further contracts being concluded by the company" (para. 81). The damages also fall within the protective scope of the obligation to file for insolvency, since this obligation also aims to prevent companies that are insolvent from continuing to participate in commercial transactions. Moreover, the internal connection required for attribution between the risk situation and the loss due to the delayed insolvency is generally to be affirmed.The more difficult question was whether the responsibility of the departing managing director is not cut off by the insolvency filing obligations of the new managing director. On this point, however, the BGH relies on the principles of concurrent causation — that is, the original breach of duty by the departing managing director and the continuing causal connection due to the persistence of the risk situation.
This causal connection is only eliminated if a second cause has altered the course of events "to such an extent that, when evaluated, the violation of the protected legal interest only stands in an 'external' or rather 'coincidental' connection to the risk situation created by the first cause."
However, if the specific dangers created by the first cause continue to be effective in the violation of the protected legal interest, the causal attribution for liability cannot be denied (para. 85). A different conclusion is only justified if, upon evaluation, the risk created by the initial wrongdoer had already completely dissipated. A wrongdoer can therefore generally not exonerate himself by arguing that another party failed to eliminate the risk situation created by him in breach of duty.The question of whether one of the managing directors is, when evaluated, more closely connected to the damage than the other is only relevant for internal recourse between them (ibid.).
According to the BGH, an interruption of the causal link is only conceivable if, upon evaluation, the risk created by the breach of duty of the managing director who has left office no longer had any effect at the time of the contract conclusion that caused damage to the new creditor, for example, if the company "had first sustainably recovered" after the breach of the duty to file for insolvency by the managing director who had left office. However, the mere lapse of time is not sufficient for this, according to the BGH. This corresponds materially to the established case law of the BGH, according to which the objective and subjective elements of the offense of delayed insolvency filing, as a continuing offense, must still exist at the time the contract leading to damage for the "new creditor" is concluded. [viii]
For practice, two conclusions have to be drawn:
On the one hand, a managing director of a company in crisis cannot simply "throw in the towel," but must ensure that he has fulfilled his statutory obligations up to the point of his departure. On the other hand, it once again becomes clear: anyone who is held liable in a D&O (Directors and Officers) matter must not only focus on their own defense, but must also carefully examine whether third parties should be notified of the dispute — in this case, the successors to the managing director's office.
d) D&O Coverage
The ruling is also significant from the perspective of D&O insurance: Insurance coverage is generally granted under the terms and within the insured sum of the policy period that is in effect when the "insured event" occurs. [ix] The "insured event," in turn, is typically defined in D&O insurance conditions as the first claim being made or the initiation of the first proceeding ("claims made" or claim notification principle). Some sets of clauses modify this through extended reporting periods and the option for circumstance notifications. Extended reporting periods grant insurance coverage for insured events that occur within a specified period after the contract ends but are based on breaches of duty committed during the active insurance period.
The option for circumstance notifications, in turn, provides coverage, for example, in cases where circumstances are discovered during the insurance period that are likely to lead to an insured event, and these circumstances are proactively reported to the insurer. An insured event based on such reported circumstances is deemed to have occurred in the policy period in which the circumstance notification was first submitted. [x] If the insurance ended in the course of insolvency because the insolvency administrator did not continue the policy, [xi] the BGH's decision could open up coverage if a managing director who left office prior to the filing for insolvency is later held liable.
e) Conclusion
Two takeaways emerge from the BGH’s ruling:
- The decision extends the liability of former managing directors by affirming the causal link between delayed filing and damages suffered by new creditors—even when those damages arise after the director has left office. This logic may apply not only to delayed insolvency filings but to any situation in which a former director leaves behind a hazardous condition that later causes harm.
- Once again, the importance of vigorously contesting the facts in delayed insolvency cases becomes clear. This must be done at the trial level to avoid procedural disadvantages or late submission issues later in the process.
To be continued…
[i] BGH NZG 2007, 678, 679; Hüffer/Koch, AktG, 13. Aufl., § 93 para. 71 (zu § 93 Abs. 2, Abs. 3 Nr. 6 AktG).
[ii] For example BGHZ 29, 100, juris para. 14; BGHZ 126, 181, juris Rn 22; BGHZ 175, 58, juris para. 10; OLG Brandenburg, Urt. vom 02.02.2024, 7 U 175/19, item 1.3 of the opinion, BeckRS 2024, 2662.
[iii] BGHZ 175, 58, juris para. 10; OLG Brandenburg, Urt. vom 02.02.2024, 7 U 175/19, unter Ziff. 1.4 der Entscheidungsgründe, BeckRS 2024, 2662.
[iv] BGHZ 175, 58, juris para. 10; BGHZ 171, 46, para. 12; BGHZ 138, 211; BGHZ 138, 211; BGHZ 175, 58.
[v] Vgl. Foray 1 dated 20.08.2024; OLG Brandenburg, judgement dated 02.02.2024, 7 U 175/19, unter Ziff. 1.4 der Entscheidungsgründe, BeckRS 2024, 2662
[vi] Judgment dated 24. Juli 2024 - II ZR 206/22.
[vii] BGH, judgment dated 20.01.2022 - III ZR 194/19, ZIP 2022, 425 para. 25; judgment dated 09.02.2023 - III ZR 125/20, AG 2023, 535 para. 26 ff.
[viii] Ibid., para. 87, mit Verweis auf BGH, judgment dated 25.07. 2005 - II ZR 390/03, BGHZ 164, 50, 56; judgment dated 05.02.2007 - II ZR 234/05, BGHZ 171, 46, para. 8, 10; judgment dated 15.03. 2011 - II ZR 204/09, ZIP 2011, 1007 para. 9; judgment dated 19.11. 2019 - II ZR 53/18, NZI 2020, 167, para. 17.
[ix] Lange, D&O-Versicherung und Managerhaftung, 2. Auflage 2022, § 9 para. 2.
[x] For more details see OLG Frankfurt, judgment dated 29.11.2024 - Az. 7 U 82/22; Reuter, Die Erschöpfung der D&O-Versicherung, Compliance Blog Beitrag v. 02.02.2025.
[xi] On the termination of D&O insurance policies and the restrictions thereon, see BGH, judgment dated 18.12.2024 - IV ZR 151/23.
