As a director or professional, you practice your profession to the best of your ability and act as is expected of you. Still, you may be held liable for mismanagement or professional misconduct.
As a director or professional, you practice your profession to the best of your ability and act as is expected of you. Still, you may be held liable for mismanagement or professional misconduct.
As an entrepreneur, director or supervisory board member, you are regularly required to assess risks and make decisions under pressure, sometimes based on incomplete information.
Things can go wrong, which is why legal entities exist that may offer limited liability. However, in order to successfully rely on that protection, you must play by the rules.
When matters do escalate, experience consistently shows that – since no one has a crystal ball – prevention is the most effective safeguard against the hindsight of creditors, insolvency trustees, judges and investors.
In practice, this means that many problems can be prevented or their consequences mitigated through proper preparation and documentation of decisions. Equally important is taking out a suitable directors’ and officers’ liability insurance policy in good time, and maintaining its coverage. But what does that actually entail?
A careful decision-making process is essential. In addition to ensuring that a decision is formally valid, it is equally important to record the substantive considerations and risk assessments that underlie it. This significantly strengthens your position in the event of any future disputes. Naturally, the required level of detail varies between organizations. The requirements for a dividend resolution in a small business differ greatly from those facing a board member of a group company who is required to co-sign a multi-billion credit facility while managing a tense relationship with shareholders, the works council, and personal concerns about the consequences of the decision. Each of these situations calls for a different structure of decision-making processes and documentation, and the standards that may be expected of the decision-makers will differ accordingly.
In many cases, a well-documented explanation of one’s reasoning and judgement will suffice. In others, it may be necessary and even required to obtain specialized advice, without this diminishing your own responsibility. We advise on both the formal aspects and the documentation of the substantive considerations that support the decision that – ultimately – you must make yourself.
Administrative obligations
One of the most important risks for directors – and at the same time one of the easiest to avoid – lies in the failure to comply with administrative obligations. The larger and more complex the organization, the more critical this becomes for ensuring transparency and control, and therefore for managing the company’s risks in real time, as well as for protecting your position as a director or supervisory board member in hindsight. This is especially relevant when there is a risk of insolvency, but in most cases it becomes important much earlier, particularly in dealings with lenders or other financiers.
Special situations
Heightened attention is required in specific situations:
Financial distress
When a company faces financial difficulties, the risks for directors increase significantly. We provide advice on matters such as: identifying financial problems at an early stage, making selective payments, managing obligations to creditors, filing notifications of inability to pay, and timely filing for suspension of payments or bankruptcy.
Acquisition and sales processes
In the event of a sale or acquisition of a company, directors bear a special responsibility, which also entails additional duties of care.
We assist you with: due diligence investigations and the preparation of data rooms or questionnaires, the scope of information disclosure, and the drafting of all transaction documentation, such as Letters of Intent and Share Purchase Agreements, always with careful consideration of your specific responsibilities.
If you are held liable, or expect that you may be, our first step will be to assess your legal position. Together with you, and often in coordination with your insurer, we will determine the appropriate strategy.
Negotiations
Where possible, we seek practical solutions outside the courtroom. We have extensive experience in negotiating settlements, and because we are able to understand and anticipate the interests of all parties involved, we are often able to resolve matters without the need for formal proceedings.
Procedures
If legal proceedings are unavoidable, or even desirable, we rely on our in-depth knowledge and many years of experience with litigation before the Enterprise Chamber, civil law claims, defending against claims brought by insolvency trustees, and administrative law proceedings.
D&O insurance
Good directors’ liability insurance is essential. In doing so, we always consider the following aspects: the scope and duration of coverage and the policy terms, freedom of choice of legal counsel, notifications to the insurer in the event of (potential) claims, claims handling (how does it work in practice once you have submitted a notification — will your costs be reimbursed immediately?), and run-off periods (how long are you still covered for past risks?).
International aspects
For directors of international companies, additional factors come into play, such as clearly differing liability risks, governance standards, and compliance obligations.
Personal guidance
We understand that director liability often has a significant impact – both professionally and personally. One of our partners is always directly involved and available for consultation. We ensure direct accessibility and provide practical, solution-oriented advice.
