HRC Constance on margin of discretion and liability of managing director Managing directors of a GmbH (German limited liability company) enjoy a margin of discretion within which they are not subject to personal liability. Even in the case of unjustifiable dealings, liability for shareholder-managing directors is not triggered until later on.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London – conclude: As a matter of principle, managing directors of a GmbH enjoy a margin of discretion when it comes to their corporate activity. In the context of this activity, they must exercise the level of care of a prudent businessman. This also includes, e.g. assessing the risk of a transaction. The managing director may be liable if infringements arise. However, the Higher Regional Court (HRC) of Constance has generously defined the margin of discretion of a managing director who is also the sole shareholder in the GmbH. Following a ruling of the HRC Constance, the shareholder-managing director is only liable in cases involving unjustifiable dealings if these result in the liquidation of the GmbH or jeopardise its continued existence, or the company is divested of share capital (Az.: 3U 1544/13).

In the instant case, the sole shareholder-managing director concluded a contract for the delivery of vehicles with another firm. The firm granted a generous discount, but in return a down payment of between 30 and 50 per cent of the gross list price of the vehicles had to be made. This down payment arranged by the shareholder-managing director came to a total of around 160,000 euros without any associated sureties being demanded. The rude awakening followed shortly thereafter. The contractual partner went bust, the vehicles were not delivered and the down payment was gone. Not long after that, the GmbH had to declare insolvency. The insolvency administrator then asserted damages claims against the shareholder-managing director, stating that the latter had breached his obligations.

The HRC Constance did not, however, consider the managing director to be liable. It stated that the managing director is entitled to margin of discretion within which he is not subject to personal liability. If this discretion is exercised correctly then the managing director is not liable even if the transaction misfires. The Court said of the case in question that the risks when purchasing the vehicles were not consistent with those permissible to a prudent businessman and the managing director had thus breached his duty of care. It nevertheless went on to state that he was not liable; this would only have been the case if the GmbH had been divested of its share capital or its liquidity or existence jeopardised.

Managing directors and other executive bodies can turn to lawyers who are competent in the field of company law when liability and contractual issues arise.

Unfair competition: Abundance of information and labelling requirements Unfair competition harms consumers and businesses that comply with the German Act Against Unfair Competition (Gesetz gegen den unlauteren Wettbewerb (UWG)). Violations of the UWG can be sanctioned.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London – conclude: The German Act Against Unfair Competition is meant to protect consumers and competitors from unfair practices and facilitate fair competition. However, violations of the UWG are no rarity.

According to its own information, the German Agency to Combat Unfair Competition (Wettbewerbszentrale) last year once again processed more than 13,000 enquiries and complaints. Roughly 60 per cent of the cases were said to relate to “misguidance and transparency”. The main focus here is compliance with the statutory information and labelling requirements.

It is absolutely possible for these information and labelling requirements to be unintentionally breached, as the number of regulations has risen continuously in recent years and it is often very difficult for individual companies to stay on top of these. A further complication is that various legal fields are frequently concerned. A constant stream of new regulations also means that uncertainty has gone up among businesses as to which rules need to be observed. It is often difficult to draw distinctions. Furthermore, the German Federal Government’s plans indicate that the Act Against Unfair Competition is set to be strengthened.

In order to avoid legal disputes, businesses can seek the advice of lawyers versed in the field of competition law. Expert legal advice can help to prevent infringements of the UWG as well as enable measures to be taken if a competitor resorts to unfair practices which jeopardise fair competition. Infringements that can be punished include, e.g. violating information requirements, aggressive sales methods, loss leaders, counterfeit, Ponzi schemes or inducing a breach of contract. That being said, national and international laws may differ in many cases.

If such infringements exist, the aggrieved business, consumer associations or interest groups can assert claims for injunction and / or removal. Damages claims, on the other hand, may only be brought by companies that have in fact been harmed by the infringement.

Protect intellectual property from copycats It is not enough simply to be more creative and quicker than the competition. It is also necessary for the intellectual property and brand to be appropriately protected to prevent them being copied or adopted.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London – conclude: It is becoming increasingly common to hear the catchphrase “product piracy” crop up. This refers to plagiarism or counterfeits which are typically placed on the market at lower prices. However, these counterfeited products are also frequently of substandard quality. This creates two problems for the firms which produce the originals. They suffer a financial loss as well as damage to their image in the case of inferior counterfeits, which can also have a financial impact in the medium run.

Although plagiarism, imitations and counterfeits are nothing new, it has nevertheless become more difficult in an increasingly digitalised world to protect intellectual property from copycats and product piracy. Moreover, the internet has opened up completely new commercial channels.

It has also become all the more important to efficiently protect one’s products, trademarks and ideas. For this to happen, all aspects of industrial property protection have to be observed, inter alia copyright law, trademark law, patent law and competition law. Lawyers who are competent in the field of industrial property protection can provide advice on these issues and ensure the best possible protection.

Counterfeiters and pirates will nonetheless continue to try to infringe copyright or trademark rights. In such instances, efficient action needs to be taken against these infringements. This may initially take the form of written warnings and cease-and-desist declarations, but the rights can also be enforced through the courts. Of course, trademarks and patents can also be entered into the relevant register beforehand.

At the same time, care must be taken to ensure that the rights of others are not infringed. It ought therefore to be checked in advance whether one’s ideas and products might potentially infringe existing trademarks and copyrights. Competent legal advice is equally helpful in these cases.

Business succession: Small and medium-sized businesses seeking young professionals Wanted: Successor! The Frankfurter Rundschau reports that, according to a study by the bank KfW, the managers of around 580,000 small and medium-sized businesses wish to retire by 2017.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London – conclude: The study by KfW shows that one in six small and medium-sized businesses in Germany is seeking a successor at the top of the company. However, the search is proving problematic due to the paucity of young professionals.

Demographic change is especially noticeable in small and medium-sized businesses, and the ageing of these businesses’ managers can have consequences. The willingness to invest can decrease, innovations take a back seat, the competitiveness and value of the business drop. According to KfW’s analysis, approximately one in every five company managers over 60 is searching for an external successor, while one in every four aspires to pass on the business within the family.

However, business succession within the family might become more difficult. Following the ruling of the German Federal Constitutional Court (Bundesverfassungsgericht) from December 2014 that the favourable treatment of company heirs is in part unconstitutional and reforms are therefore necessary, company heirs will in future receive less preferential tax treatment in the context of business succession than has hitherto been the case. It is not yet clear what the reforms will look like, but family businesses will have to prepare themselves for changes. It is possible they will have to demonstrate based on a needs test that inheritance tax would cause economic losses.

The Bundesverfassungsgericht nonetheless held that tax concessions for company heirs were legitimate as a matter of principle if jobs are thus able to be maintained, but the scope of this preferential treatment is debatable.

In order to be able to benefit from the tax concessions, family businesses that are soon to be faced with business succession ought to act promptly, as the new rules are not expected to apply retroactively. Businessmen can turn to lawyers and tax advisors who are experienced in the field of tax law to arrange businesses succession in a way that is optimal from a tax perspective, preserves jobs and avoids jeopardising the company’s continued existence. They will provide you with expert advice from the outset on business succession.

BGH strengthens trademark law The German Federal Court of Justice (Bundesgerichtshof (BGH)) strengthened trademark law in a recent ruling, according to which it is possible to demand the cancellation of a trademark based merely on a close resemblance.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London – conclude: In the case in question, the First Civil Division of the BGH had to rule on whether it is possible to demand the cancellation of a trademark if there is no risk of confusion yet the trademarks bear a great resemblance to each another.

The case concerned a word-image trademark of a well-known manufacturer of sports goods. Another company had used a modified, parodied version of this for its goods. The sports goods manufacturer considered this to be an infringement of its trademark rights and won its case. The BGH confirmed the judgments of the Regional and Higher Regional Courts and ordered that the similar-looking trademark be cancelled.

The Court stated in its reasoning that, despite all of the clear differences, the trademarks still bore a great resemblance to each other. It went on to say that while there was no risk of consumers confusing the trademarks, the prominence of the sports goods manufacturer was being used to raise awareness of the other company’s products and this was unfair. More weight was to be attached in this case to sports goods manufacturer’s trademark rights than those invoked by the defendant, namely artistic freedom and the right to freedom of expression.

As is demonstrated in the instant case, trademarks are of great value to businesses. The more well-known a trademark is, the greater its estimated value. It is important to take action to protect a trademark to prevent third parties from taking commercial advantage of its success and potentially emerging as a competitor. This is especially applicable to companies that operate internationally. Here, the trademark rights ought to be expanded beyond state borders. If the trademark rights are infringed, it may be possible to assert damages claims.

That being said, care must also be taken from the other side of things when entering a trademark into the register that existing trademark rights will not thereby be infringed. Companies can turn to lawyers who are competent in the field of trademark law for support.

Compliance to prevent losses For their own benefit, executive boards ought to issue carefully defined rules of conduct. Compliance is an important topic both from a legal and media perspective.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London – conclude: If company executives make overly lavish use of company funds this can quickly lead to trouble with the supervisory board or shareholders, and things don’t have to stop there; there may also be the threat of legal difficulties or damages claims.

In order to avoid this, companies should develop as detailed a compliance system as possible. The more precisely the rules are defined, the lower the risk of disputes arising at a later date. These rules apply to all of the company’s employees, but they can of course vary and distinguish between different positions within a company. It essentially comes down to appropriateness and transparency to avoid mixing business and private interests to the detriment of the company. Having said that, compliance is not only an issue for large companies but also small and medium-sized businesses.

A detailed compliance system facilitates adherence to contractual rules and statutory provisions so that criminal offences are not committed by employees within the company. This equally applies to the executive board or company management, which is simultaneously responsible for setting up a functioning compliance system. Without such a system, the company may incur significant economic losses and damages claims can emerge against the firm and its executive bodies, as the German Administrative Offences Act (Ordnungswidrigkeitengesetz) obligates companies to ensure that no statutory infringements arise from within the firm.

In order for a compliance system to be able to fulfil its function, its effectiveness should be regularly reviewed and, where appropriate, the system ought to be adapted. Setting up and structuring the content of a compliance system can pose a major challenge to businesses because various laws and regulations need to be observed in the process. Lawyers who are competent in the field of commercial law can be of assistance when introducing and reviewing a compliance system.

Minimum wage: Principal employer also liable for subcontractors The introduction of the national minimum wage does not only apply to direct employment relationships; general contractors are also liable for their subcontractors.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London – conclude: The national minimum wage has been in force in Germany since the beginning of the year. Apart from a few exceptions, companies must pay their employees the minimum wage of 8.50 EUR per hour. The regulations go further: if a company engages a subcontractor, it is also responsible for making sure that the subcontractor pays the minimum wage.

The so-called general contractor effectively assumes the role of a guarantor when it comes to enforcing the minimum wage. It also bears responsibility for ensuring that the subcontractor pays the statutory minimum wage to its employees. If this is not the case, it is the principal employer that is liable. It is obligated to carefully inspect potential subcontractors during the selection process. Moreover, the burden of proof rests with the principal employer to demonstrate that it has satisfied its duty of care in the case of infringements.

Thus, should a subcontractor violate the regulations regarding payment of the minimum wage, it is important for the principal employer to be able to prove that it has not breached its duty of care. To this end, the selection and selection criteria ought to be carefully documented and the contracts with the subcontractors should, of course, also be drawn up accordingly. A lawyer competent in the field of labour law can be consulted for the drafting of contracts. He will also be able to represent the company’s interests in the event of a dispute.

The statutory minimum wage has to be paid to all employees. It is irrelevant whether a job is full-time, part-time or a so-called mini-job. Having said that, there are exceptions: apprentices, voluntary workers and self-employed persons. These groups do not have a right to be paid the minimum wage. Similarly, those below the age of 18 who have not completed any vocational training also represent an exception.

Minimum wage legislation has resulted in employers being faced with new obligations and there are still uncertainties. Lawyers versed in labour law can provide you with further assistance if you have questions concerning the minimum wage and other matters relating to labour law.


Get every new post delivered to your Inbox.

%d bloggers like this: