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Created on Wednesday, 18 May 2011 16:17

Last Updated on Friday, 28 December 2012 18:40

Liability of all Managing Directors in spite of Department Assignments

In for a dime, in for a dollar? It is not unusual for a corporation to have more than one managing director. Of course each director has his own bailiwick but what about the liability for the co-managing director? FG Munich has again clarified this issue with its judgment of June 15, 2010 (re 14 V 1552/10).

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The doctrine of overall liability prevails - as a rule of the thumb. However, the director of a certain department does have full responsibility for his department. The other directors are however not exempt of any responsibility at all. To boil it down, doctrine of overall liability prevails - in modified form. Heading a certain department determines only the scope of responsibility.

Every director may trust that his colleague is doing a good job. This trust, however, may not be blind! He also has to keep an eye on the other directors and be informed on what is going on in the other departments. The scope of such monitoring duties depends on the individual situation: the more important the greater the duty! When you have special knowledge or abilities, they will be held against you. Tough luck though, when you are inexperienced: you still get no pardon. The leading managing director has even greater responsibilities because he has this outstanding, leading position.

What does it mean to "keep your eyes open"? Whenever you get serious doubts of any kind then you have to start interrogating your managing colleague. Also you are obliged to meet all mandatory requirements in a timely manner.

As everybody has all responsibilities then this will go hand in hand with information rights. Everybody should know everything and everybody has the right to be informed on everything. The first to get the information is, of course the department manager. Also, when necessary, third parties must be questioned, as well. Only in well justified, exceptional cases, when business secrets are at stake, can information rights be cut.

Whenever you notice "something seems to be going wrong", you have the right and duty to intervene - unless the company's bylaws say something different. The minimum expected of you is to bring the issue to all directors that all may discuss and decide what to do. Don't forget your personal liability is being discussed here! As an ultima ratio, when nothing has worked and seemingly will not change, weigh the risks and resign.

Hint:

Though the tax court actually only discusses matters of fiscal law, this decision will always be held against a managing director who's colleague goofed up in other scenarios than tax law.