Managing Director Liability – Contracts Shortening the Statute of Limitations inadmissible

 • White-Collar Crime from Christopher Schrank

According to the law, claims for compensation by the GmbH against "its" managing directors become time-barred within five years. In practice, however, shorter limitation periods are often agreed. This is to encourage managing directors to make entrepreneurial decisions by not leaving them in the dark for too long with regard to possible liability. According to a recent decision of the Austrian Supreme Court, however, such reductions are invalid.

Limitation of liability of managing directors

The GmbHG Act provides for an independent basis of claim for the liability of managing directors vis-à-vis “their” company. Accordingly, managing directors are liable if they violate the due care and diligence of a diligent businessman in the course of their activities and the company suffers damage as a result (“managing director liability”). Such claims for damages become time-barred within five years due to the express statutory provision of Sec. 25 (6) GmbHG. § Sec. 84 (6) AktG also contains the same provision for members of the management board.

According to case law, this period replaces the general limitation period of three years under civil law, resulting in an extension of the liability of managing directors. In practice, therefore, the – potentially liable – managing directors typically feel the need to shorten the limitation period in order to “get rid” of liability for any acts in breach of due care as quickly as possible. Consequently, it is quite common to include expiry clauses in managing directors’ contracts which shorten the statutory five-year limitation period.

Shortening invalid according to OGH

In a recent decision (9 ObA 136/19v), the Austrian Supreme Court has now ruled that this five-year limitation period is mandatory law. A contractual shortening of the period is therefore null and void. The Supreme Court justifies its legal opinion with a twofold protective orientation: The five-year limitation period protects both the creditors of the company and the shareholders themselves. Company creditors do not have any direct claims against the managing directors, but can, if necessary, seize the company’s claims for compensation against the managing director by way of execution. A shorter limitation period would thus reduce the liability fund of the creditors. At the same time, the longer limitation period is also intended to protect the shareholders themselves.

The team
Christopher Schrank
Partner / White-Collar Crime, Compliance & Internal Investigations, Corporate Law & Transactions
Christopher specializes in representing both corporations and executives in complex matters or criminal law and corporate legal disputes. He also leads internal investigations and helps companies prevent problems before they arise.

University of Vienna, Faculty of Law (Mag. iur. 1998, Dr. iur. 2001)
Vienna University of Economics and Business Administration (Mag. rer.soc.oec. 1998)