A managing director may be liable towards the company despite a settlement clause in the termination agreement. That was the verdict of the Oberlandesgericht (OLG) München, the Higher Regional Court of Munich.

The company and the managing director may agree to a settlement clause within the framework of a termination agreement according to which the parties will be indemnified from and against all mutual claims. We at the commercial law firm GRP Rainer Rechtsanwälte note that neither party can invoke this clause if it fraudulently conceals material circumstances. It was with this in mind that the OLG München held a managing director liable in spite of a settlement clause and awarded the company damages in a ruling from 18 April 2018 (Az.: 7 U 3130/17).

In the instant case, the defendant was the sole managing director of a GmbH, a type of German private limited liability company. The managing director”s service contract stipulated, among other things, that he required written approval from the general meeting of the shareholders prior to concluding rental agreements with a term of longer than three years or an annual rent of more than 24,000 euros. In December of 2014, the managing director nonetheless entered into a ten-year rental agreement with an annual rent of around 51,000 euros without the consent of the general meeting. In April of 2015, the managing director”s service contract was terminated by mutual agreement. At the same time, the parties agreed to a settlement clause pursuant to which all claims arising from the service contract were considered settled.

At this point in time, the company had no knowledge of the rental agreement that had recently been concluded. It later reached a settlement with the renter to terminate the rental agreement in return for payment of compensation in the amount of 60,000 euros. The company subsequently sued its former managing director for payment of this amount.

The OLG München awarded damages, ruling that the defendant should not have entered into the rental agreement without the general meeting”s written approval and that in doing so he had breached his obligations to the company. The fact that he was said to have acted in the interests of the company did not affect this outcome. The Court went on to state that the settlement clause in the termination agreement equally did not preclude the claim for damages. The OLG München noted that while the claim did indeed fall within the ambit of the clause because the latter concerned all claims of the parties, the defendant could not rely on it because he had exceeded his authority, then fraudulently concealed this and failed to come clean even at a later date,

Lawyers who are experienced in the field of company law can advise companies as well as managing directors.