RULING MAY INCREASE GERMAN D&O LIABILITYPosted On: Mar. 9, 1997 12:00 AM CST
KARLSRUHE, Germany-A recent German Supreme Court ruling on employers' benefit obligations may increase German companies' directors and officers liability exposure, legal experts say.
The court ruled last week that employers in financial trouble must make provisions for payment of social insurance premiums-including health insurance, pension benefits, workers compensation benefits, unemployment benefits and long-term nursing care benefits-before any other debts. Failure to do so could result in liability and criminal charges for company officials.
In its ruling, the Bundesgerichtshof in Karlsruhe, Germany, found that employers must make capital provisions to ensure that payments for social insurance premiums for employees have priority over other debts. Should employers pay other debts first and then go bankrupt, employers are liable for damages and may face criminal charges.
In 1993, a managing director of a failing company, which was not identified in the case, used 1.7 million DM ($991,780) of company funds to pay corporate debts without reserving for further payment of social insurance premiums.
On the due date for the social insurance premiums, the company paid employees their net wages but could not pay the premiums.
When the company filed for bankruptcy, the German sickness fund Allgemeine Ortskra-nkenkasse sued the manager for damages.
Legal experts say the decision sets a precedent that likely will increase the demand for directors and officers liability insurance in Germany.