Federal Court of Justice relaxes requirements for (criminal) liability of de facto managing directors

The Federal Court of Justice has clarified that the question of whether someone is liable as a de facto managing director cannot be answered schematically on the basis of a fixed set of criteria. Rather, a case-by-case examination of whether typical company management activities were carried out is decisive (judgment of February 27, 2025 – 5 StR 287/24).

The case

In the case submitted to the Federal Court of Justice for a ruling, the defendant had brought companies in need of restructuring under his control, unlawfully appropriated the remaining company assets and acted with the involvement of a straw man managing director who had no business experience. The defendant, who had already appeared in the past as a "company undertaker," was not registered as a managing director.

The Regional Court had convicted the defendant of aiding and abetting bankruptcy offenses and delaying insolvency on the part of the straw man managing director. As the perpetrator, he could not be punished because he was neither a formal nor a de facto managing director. He did not fulfill a majority of the "classic characteristics" of corporate management that would qualify him as a de facto managing director; in particular, he did not represent the company externally.

The Fifth Criminal Division of the Federal Court of Justice overturned the judgment on the grounds that the Regional Court had not considered the defendant to be the de facto managing director in his favor due to an erroneous assessment of the law. It was not decisive whether the defendant fulfilled a majority of "classic characteristics" from the core area of company management. Rather, what was relevant was the extent to which the defendant had actually taken on tasks typical of an executive body within the company. Appearing externally was not a mandatory prerequisite for a de facto executive position, especially in the case of “company burials.”

The Senate referred the case back to another chamber of the Regional Court because it was unable to reach a decision on the merits of the case due to insufficient findings.

Background: "Company burials"

"Company burials" is a term used to describe a phenomenon whereby companies in need of restructuring are liquidated by being transferred to or acquired by other (solvent) companies. This practice can have significant legal consequences, especially for the managing directors involved. The legal framework and the liability of managing directors are complex and require a deep understanding of the relevant laws and standards.

It is not only registered managing directors who are subject to these risks. Anyone who pulls the strings "behind the scenes" without being appointed as a managing director and entered in the commercial register is also subject to the same risks as the official managing director as a de facto managing director. The Federal Court of Justice has now lowered the requirements for affirming de facto managing director status.

Company burial: A lucrative business model?

The (solvent) liquidation of companies is generally permissible and also common practice. However, the transfer of companies in financial distress to third parties can also be classified as an attempt to deceive creditors, conceal assets and thus ultimately remove them from the reach of creditors. This can have criminal consequences, especially if the transfer is made with fraudulent intent.

In the case discussed here, the liquidation of the companies took place entirely outside the scope of insolvency law, as planned. The companies were liquidated without ever filing for insolvency, even though this should have been done on numerous occasions (delayed insolvency, Section 15a InsO). In the course of the liquidation, the defendant also unlawfully appropriated numerous assets of the companies to be liquidated via the Bulgarian limited liability company (which held the shares in the companies to be restructured) (bankruptcy offenses).

Liability of the (de facto) managing director: Are there any risks here?

Managing directors bear a special responsibility and can be held personally liable (i. e., also criminally liable) for misconduct. They are suitable perpetrators of the (therefore so-called) "special offenses" of delaying insolvency and bankruptcy. If, as in the case discussed, a straw man is appointed as managing director, the question arises as to whether only the straw man or also the person behind him who is pulling the strings can be considered a suitable perpetrator of the special offences in question.

The straw man often has no actual decision-making authority and merely serves to conceal the control of the actual (behind-the-scenes) puppet master.

In the present decision, the Federal Court of Justice clarifies that the examination of whether or not a de facto managing director exists cannot be carried out on the basis of a scheme and a fixed set of criteria. In the opinion of the Senate, it is rather decisive to examine whether tasks typical of a managing director were actually performed, based on the specific activities and the specific situation. It points out that the respective situation is decisive and that, for example, in the case of "company burials," external appearances are not necessary to determine the de facto position within the organization – unlike, for example, in the case of advertising companies.

In the present case, the decisive indication for assuming typical management tasks was that the defendant always retained control over all essential processes and did not pass on any information to the actual managing director. If he did so, this had no influence on the processing, as the formal managing director appointed did not have the legal or economic knowledge to understand the processes.

Practical tip

The flexible and case-by-case examination of the requirements for de facto executive status required by the Federal Court of Justice increases the risk of criminal conviction for masterminds who deliberately remain outside the formal executive structure.

This applies not only to cases designed from the outset to illegally dissolve a company, but also to legal restructuring characterized by uncertainty and considerable dynamism.

Legal advice should be sought at an early stage, even if there are signs of economic difficulties and a consequent risk of insolvency, in order to avoid potential liability not only for the managing director, but also for dominant shareholders or other responsible persons. Particularly in monistic or personally influenced shareholder structures, shareholders are well advised to respect the core area typical of managing directors and not to interfere in it.