Directors' Liability and Enforcement Mechanisms – General Structure and Key Issues – From the German Perspective

Abstract

The issues of directors' liability have been at the center of the German discourse in corporate law for some time – both politically and academically. There have been efforts at legislative reform, some very significant court rulings and a torrent of legal writing. This paper presents an overview over the general structure of the rules pertaining to directors' liability in its first part. The second part is focused on some key issues and arguments. The bottom line of the evaluation is that the current German order of directors' liability is imbalanced and overly rigorous. It is a combination of three main elements that constitute this finding:

(1) the sheer number and vague scope of organizational duties,

(2) the restrictive approach of German statutory law to liability limitations and

(3) the duty of the supervisory board to enforce valid claims, which renders a flexible and potentially lenient reaction at least very complicated and sometimes even impossible.

It is concluded that the focus of reform should be on liability limitations, for which various models discussed in the paper may bring about improvement. However, in the light of the unambiguous statutory provisions of Sec. 93 Stock Corporation Act, any significant reform can only be achieved by the legislature.

Keywords: directors' liability, director's liability, directors' liability and enforcement mechanisms, enforcement mechanisms, German corporate law, corporate law

JEL Classification: K20, K22