Tue, Jan. 24, 2006

Officer as Consumer

HF - Washington.   On November 8, 2005, the federal court of justice, Bundesgerichtshof, decided on the applicability of the consumer credit protection statute, Verbraucherkreditgesetz, VerbrKrG, to a managing officer's liability where such officer is also the sole shareholder of a limited liability corporation, GmbH, and co-signed certain loans for the company. When called to pay up, he claimed the voidness of this liability under the consumer credit protection statute.

The court, in the matter XI ZR 34/05, agreed with the officer. Under established case law, the VerbrKrG applies to joint liabilities if the jointly-made contract is a loan agreement. The court confirmed that the VerbrKrG applies to an officer who is a sole shareholder. The key issue is whether the officer and sole shareholder may be characterized as a consumer as per §1(1) VerbrKrG, or as a sole proprietor, to whom the VerbrKrG does not apply.

Some German lawyers advocate equal treatment of the officer and sole shareholder of a GmbH with that of sole proprietors. The court disagreed after interpreting the limited liability company act, Gesetz betreffend die Gesellschaften mit beschränkter Haftung, GmbHG, and the commercial code, Handelsgesetzbuch, HGB. §13(3) GmbHG, §6(1) HGB provide expressly that only the GmbH, the company itself, is qualified as a commercial entity whereas the officers are not. The fact of holding the majority or all shares does not justify a different result. The share ownership constitutes an administration of assets not a commercial activity.

Therefore, the jointly-held loan obligation of this corporate officer cannot be qualified as commercial activity under §350 HGB. The court also pointed to an important difference between the officer of a GmbH and a sole proprietor that prohibits applying commercial rules to officers and sole shareholders. Under the law, sole proprietors are personally liable for the debts of their business. This principle of management and personal liability, however, does not apply to the officers and sole shareholders of a GmbH under §13 GmbHG. In fact, the GmbHG does not know personal liability of either the officer or the sole shareholder. Therefore, the black letter and intent of the GmbH statute render officers of such entities jointly and severally liable for a co-signed loan in their capacities as private persons who deserve the protection of consumers under §1(1) VerbrKrG.


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