Compensation in the course of manager liability: requirements and limits
Managing directors are liable for damages that they have caused through unlawful and culpable behavior. From a civil law perspective, the following liability requirements must be met for a claim for damages:
- Damage: The managing director must have caused damage through his actions. In this context, damage is any reduction in assets that is considered a legal disadvantage. In the case of director’s liability, damage occurs if the assets of the limited liability company have been diminished.
- Causality: The damage must be attributable to the actions of the managing director. This is the case if the action is directly related to the damage that has occurred. An exception exists if the managing director could not reasonably have expected the damage or if the damage would have occurred even with lawful alternative behavior.
- Unlawfulness: For the managing director to be liable, their conduct must also be unlawful. This is the case if legal requirements, common decency, contractual provisions or the duty of care pursuant to Sec 25 para 1 of the Austrian Act on Limited Liability Companies (GmbHG-Gesetz, in the following “GmbhG”; for stock corporations pursuant to Sec 84 para 1 of the Austrian Stock Corporation Act, Aktiengesetz, in the following “AktG”) are violated. A breach of internal guidelines, articles of association, shareholder resolutions or the rule of procedure is also considered unlawful conduct.
- Fault: Fault exists if the managing director can be personally held liable for unlawful conduct. Managing directors are not subject to success liability, but to fault liability. Managing directors are not only culpable in the case of intentional misconduct, but also in the case of negligent behavior.
Criminal liability of managers
Manager liability is not only relevant in a civil law context, but also has considerable significance in the area of commercial criminal law. The most important criminal offenses under the Austrian Criminal Code (StGB) for managers include
- Misappropriation (§ 133 StGB): This offence concerns the unauthorized use or misappropriation of entrusted assets. A managing director may be liable to prosecution if he uses company funds or property for private purposes or misappropriates them.
- Fraud (§ 146 StGB): Fraud is committed when someone is induced to act, tolerate or refrain from acting in a way that damages their assets or those of a third party by deceiving them about facts. Managers may be liable to prosecution for fraud if, for example, they make false statements in annual reports or deceive business partners about material information and thereby cause financial loss to another person.
- Embezzlement (Section 153 StGB): Embezzlement presupposes that someone abuses their authority to dispose of another person’s assets and thereby causes financial loss to the asset holder. Managing directors have a special duty to look after the company’s assets. If they breach this duty – for example by entering risky transactions without adequate hedging or by concluding contracts that damage the company – they may be liable to prosecution for embezzlement.
- Fraudulent insolvency (§ 156 StGB): This offense primarily relates to criminal acts committed when the company is experiencing liquidity difficulties. Fraudulent insolvency can be committed if, for example, a managing director conceals assets, puts them aside or deceives creditors by making false statements, thereby disadvantaging or reducing the satisfaction of at least one creditor.
The criminal liability of managers underlines the need for legally compliant corporate governance. Violations of these criminal provisions can have significant personal consequences, including long prison sentences of up to ten years. In the event of a final conviction to a prison sentence of more than six months for one of the above-mentioned economic offenses, managing directors or members of the management board may no longer work in this function (“disqualification” pursuant to Sec 15 para 1a GmbHG and Sec 75 para 2a AktG).In addition, criminal conduct by a manager as a so-called decision-maker can also result in the GmbH or AG being held liable under corporate criminal law. In addition to legal disadvantages, the company’s reputation can of course also be permanently damaged. It is therefore essential that managing directors and board members adhere to the legal requirements and that companies implement effective compliance measures to prevent legal violations. If necessary – as will be explained in more detail below – the advice of a specialist should be sought so that the options for action can be examined quickly.
Business Judgement Rule (Sec 25 para 1a GmbHG and Sec 84 para 1a AktG)
The Business Judgement Rule is a legal principle in company law that regulates the liability of managing directors and board members and is intended to create a liability-free scope of discretion for them. It protects managers from personal liability for decisions that subsequently turn out to be unfavorable, provided that these decisions were made on a careful and appropriate information basis and were in the best interests of the company.
According to Sec 25 para 1a GmbHG, a managing director acts in accordance with the diligence of a prudent businessman if he is not guided by extraneous interests when making a business decision and may assume, based on appropriate information, that he is acting for the benefit of the company. The same protection mechanism also exists for members of the management board of stock corporations in accordance with Sec 84 para 1a AktG.
Both regulations aim to preserve the decision-making freedom of managers by protecting them from liability risks, provided that their decisions are made with due care.
Involvement of an attorney at law or defense lawyer in cases of possible manager liability
In the event of allegations of (possible) misconduct, it can be crucial to consult a lawyer at an early stage to defend against civil law claims or criminal law allegations. Particularly in the area of commercial criminal law, extensive criminal investigations are often initiated against managing directors on the basis of a complaint. In such cases, an experienced criminal defense lawyer is essential to protect the rights of the managing director, develop a sound defense strategy and avert potential criminal consequences.
From the company’s point of view, it is also expedient to consult an expert in managers’ liability in a timely manner in order to assert possible claims for damages against (former) managing directors or board members and to be able to examine the company’s possible own criminal liability. Claims against managing directors can be made as part of a statement of facts with a private participation connection criminal proceedings or through a civil action.
