Managing director is required to set up a compliance structure!

Within the scope of his activities, a managing director has various obligations of diligence, monitoring and organisation. If he does not properly comply with these, he is liable to the company for the damage incurred. The Higher Regional Court of Nuremberg (OLG [Oberlandesgericht] Nürnberg) specified the scope of these obligations in its ruling of March 30, 2022 (Case No. 12 U 1520/19).

In the case in question, a GmbH & Co. KG issued fuel cards to its customers that enabled them to refuel without the use of cash at the service stations it operated. Some customers exhausted or exceeded their credit limits. The responsible employee of the GmbH & Co. KG noticed this, however, he did nothing about it. To disguise the credit overdraft, he assigned fuel cards of the customers concerned to other customers; he manipulated the corresponding invoice letters. He also offered to act as an authorised signatory for the customers concerned, as this would enable him to better monitor or arrange payments to the GmbH & Co. KG. Insolvency proceedings were then opened against the assets of these customers, which caused the GmbH & Co. KG a total loss of receivables of around EUR 860,000. As a result, the latter asserted claims for damages against the managing director of the general partner GmbH for breach of diligence in connection with the damage caused to the company by the embezzling employee. The Higher Regional Court of Nuremberg essentially followed the argumentation of the GmbH & Co. KG.

The managing director must be measured against the diligence of a prudent businessman. In the case in dispute, this also applies with regard to the GmbH & Co. KG, which was co-managed by the managing director of the general partner GmbH. After all, the sole or essential task of the general partner GmbH consisted in the management of the business of the limited partnership. It is therefore irrelevant for the assertion of claims for damages of the GmbH & Co. KG that the managing director employment contract existed in the present case with the general partner GmbH.

The diligence of a prudent businessman requires the establishment of an internal organisational structure of the company which ensures the legality and efficiency of its actions. This particularly applies if the managing director does not decide on and implement all measures himself. In this respect, the obligation of diligence is substantiated as an obligation to organise the company. The managing director is obligated to organise the company he manages in such a way that he has an overview of the economic and financial situation of the company at all times. This requires a monitoring system by which risks to the company’s going concern can be identified and controlled. Furthermore, the managing director is responsible for setting up a compliance structure, i.e. setting up organisational precautions to prevent the company or its employees from committing legal violations.

By implementing these measures, the managing director should have been aware of the steadily growing and alarmingly high level of receivables even before the manipulations by the embezzling employee.

In addition, the managing director should have intervened when the employee interfered with the invoicing process. The fact is that the employee’s activities in areas outside his actual area of responsibility could have been easily detected and thus prevented by means of an appropriate control and monitoring system, e.g. by technical blocks or organisational measures. To this end, the managing director would have had to enforce the dual control principle in the area of activity of the embezzling employee. If this principle had been observed, the employee’s manipulations would have been noticed and prevented from the outset. Nevertheless, failure to find suitable personnel for this purpose does not exonerate the managing director. If necessary, he would have had to participate in this area of activity himself.

Moreover, the proposal by the embezzling employee to act as an authorised signatory for the customers concerned showed a clear conflict of interest which would have required immediate effective control measures on the part of the managing director.

In summary, the managing director of the general partner GmbH is therefore liable for damages to the GmbH & Co. KG, as he failed in his obligation to avert the damage by preventing the fraudulent conduct of the embezzling employee.