In an article published by the Verlagswelt Magazine Mr. Ralf Kaske, who is a lawyer, cautions against the widely accepted opinion that managing directors of small and medium-sized entities (SMEs) were only liable to a limited extent. Nowadays even in cases of slight negligence of their duty of diligence by managing directors claims for compensation could be enforced, given that directors of German GmbHs were subject to special liability regulations. According to Mr. Kaske there is the danger that, if a company has financial problems, their leaders could be “made the pawn sacrifice”. Even small irregularities in the company may therefore lead to the private ruin of managing directors.
Among other things “deals which require the consent of the assembly of associates or the advisory board are very problematic to managing directors” says Mr. Kaske. Furthermore company leaders are obliged “to organise work processes such that no financial damages arise”. In the case of employees misappropriating company money due to some control mechanism not working, the managing directors could be made liable for that, says Mr. Kaske.
Mr. Kaske, who is well experienced in legal issues, gives concrete examples of problematic cases in which the question of liability of a private limited company (GmbH) is unclear. An efficient protection against such risks could only be provided by taking out a D&O third party liability insurance (⇒ Wikipedia).