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German corporate law: Disclosure obligations of a limited liability company managing director in breach of trust

Company law

German corporate law: Disclosure obligations of a limited liability company managing director in breach of trust

The Higher Regional Court of Brandenburg has ruled (judgement of 4 December 2024 - 4 U 65/23) that a managing director of a limited liability company who founds a competitor company during his term of office is obliged to provide information about his business activities in relation to this competitor company even after he has left office.

 

During his term of office, the defendant managing director had taken orders from the limited liability company and transferred them to his own company. The claimant limited liability company demanded information about the managing director's business activities in order to quantify possible payment claims. The court found that the managing director's duty to provide information depends on a justified suspicion of a breach of duty and the company's need for information. Breaches of non-competition covenants and the deprivation of business opportunities were found to be breaches of the duty of loyalty under company law.

This judgement is justifiable; the Federal Court of Justice had already ruled in 2021 (II ZR 140/20) that a managing director of a limited liability company is obliged to provide information to the company under Section 666 in conjunction with Sections 675, 611 of the German Civil Code (BGB) even after his dismissal and termination of his managing director employment contract if he would reveal a breach of duty with the requested information. In addition, it is pointed out that a preparatory action for information against the managing director can be useful in order to prevent a subsequent action for directors‘ liability.