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Case:
BGHZ 29, 100 VI. Civil Senate (VI ZR 245/57)
Date:
16 December 1958
Judges:
Professor B.S. Markesinis
Copyright:
K. Lipstein

The defendant and B, a merchant, were the sole shareholders and directors of a . . . private company [GmbH]. On 17 July 1954, on the application of the company, bankruptcy proceedings were started against it.

The plaintiff, who had supplied raw materials to the company over many years, claimed DM 26,604 as a non-privileged creditor. According to the report of the trustees in bankruptcy, the assets only sufficed to satisfy in part the claims of the privileged creditors.

Claiming only part of the sum registered in the bankruptcy proceedings, the plaintiff sued the defendant personally on the ground that he had neglected in several respects his duties as a director of the company and that the plaintiff had suffered considerable damage as a result. In particular he had failed, in contravention of § 64 of the Act relating to Private Companies [henceforth cited as GmbHG] to initiate bankruptcy proceedings in time, although the company had been insolvent and overburdened with debts for some time.

The District Court rejected the claim; the Court of Appeal of Hamburg allowed it. Upon a further appeal the judgment of the Court of Appeal was quashed and the case referred back for the following

Reasons

I. The managers of a private company are obliged under § 64 I GmbHG to apply for the start of bankruptcy proceedings as soon as the company becomes insolvent or if the annual or an interim balance sheet shows that the debts exceed the assets . . . The Court of Appeal regarded this provision as a law for the protection (§ 823 II BGB) of the creditors of a private company and held that the defendant had culpably violated his duty to initiate bankruptcy proceedings . . .

II. The appellant denies that § 64 I GmbHG is a protective law in the meaning of § 823 II BGB in favour of the creditors of a private company. He contends that this conclusion was ruled out by § 64 II GmbHG which hardly made any sense if § 64 I bore a protective character. This view cannot be accepted. § 64 II GmbHG only establishes the consequence as between the directors and the company if bankruptcy proceedings are begun too late. It provides that the directors must compensate the company in respect of payments made after the company became insolvent or overburdened with debts if these payments cannot be reconciled with the case of a merchant. It does not follow therefore that this provision determines exhaustively the responsibility of the directors for their dereliction of duty and that the creditors of the company are denied protection in their own right. The Act relating to Private Companies does not state whether the directors are liable to the creditors, and this question must therefore be determined in accordance with the general principles of private law [references].

The plaintiff may claim damages based on a violation of § 64 I GmbHG in conjunction with § 823 II BGB if this provision of the Act relating to Private Companies is also intended to protect the creditors of a private company and to afford them the type of protection which the plaintiff claims for himself [references]. Whether this is so must be determined in the light of the substance and the purpose of § 64 GmbHG.

1. § 64 I GmbHG provides that the directors must initiate bankruptcy proceedings as soon as the private company becomes insolvent or if the balance sheet discloses that the debts exceed the assets. If the directors fail to initiate these proceedings in time they are liable to imprisonment or a fine in accordance with § 84 I GmbHG. Clearly these provisions are intended to protect the creditors of the company as well. They, in particular, always suffer damage if bankruptcy proceedings are not begun or are not begun in time. It is obvious that the duty to apply to the court laid down by § 64 I GmbHG is also to protect them. This protection of the creditors is all the more called for as the partner shareholders of a private company are not liable personally for the debts of the company. The Reichsgericht, too, has held in a constant practice that § 64 GmbHG is a law for the protection of the creditors of the company. It has held that, while this provision does not protect everyone, particularly not those persons who are extraneous to the company, it is intended to protect not only the interests of the company but also the creditors [references].

2. The appellant argues further that even if § 64 GmbHG bore the character of the protective law, it could only protect the creditors existing at the time when bankruptcy proceedings should have been begun. If, as the Court of Appeal has held, the defendant should have started bankruptcy proceedings in January 1954 at the latest, the plaintiff could not, as regards claims arising after this date, be placed in a better position than other subsequent creditors for the reason that other claims of his were of an earlier date. At best he could claim damages in respect of the loss resulting from the fact that the dividend in respect of his claims outstanding in 1954 was smaller owing to the delay in starting bankruptcy proceedings than it would have been otherwise. However, the plaintiff had not incurred such a loss for he had admitted himself that his claims arising during the period up to January 1954 had been satisfied. As regards goods supplied between 31 January and 15 July 1954, which were alone in issue, the plaintiff could not claim any damages against the defendant on the basis of § 823 II BGB, § 64 GmbHG.

The appellant is wrong in believing that § 64 GmbHG only protects those persons who were already creditors of the company when the conditions for the operation of § 64 I GmbHG materialized [reference]. The duty of the directors to start bankruptcy proceedings continues even after this date, as long as the company’s debts exceed the assets or the company is insolvent. No reason exists for restricting this continuous duty to apply to the court to the claims of old creditors, that is to say, creditors whose claims already existed at the time in which the delay occurred in making the application. The duty of a director to initiate bankruptcy proceedings exists also towards a creditor who after this date supplies goods to the company on credit or who becomes its creditor otherwise. As a present creditor of the private company he is protected against subsequent infringements of § 64 I GmbHG in the same way as are old creditors. Therefore, contrary to the appellant, the protection accorded to the plaintiff extends also to claims against the private company which arose after 31 January 1954.

3. The question remains as to how far the protection extends which the plaintiff enjoys for this period by virtue of § 64 I GmbHG. The plaintiff seeks as damages the full price of the goods which he supplied after 31 January 1954, i.e. after the date when, in the plaintiff’s opinion, the defendant should have started bankruptcy proceedings at the latest. The plaintiff can claim compensation for this damage on the strength of § 823 II BGB only if the entire damage falls within the range of dangers to protect against which § 64 GmbHG was enacted [reference]. If a statute serves to protect certain persons they can only claim compensation for such damage which occurred within the range of the interests protected by the statute. Therefore, before it is possible to apply § 249 BGB on which the plaintiff relies, it is necessary first to examine the range of protection afforded by § 64 I GmbHG and to determine, first of all, whether this provision is intended to provide that protection which the plaintiff claims in his favour.

In examining the question of the meaning and the purpose of this provision it appears, first of all, that the purpose of the legislature is to secure a prompt initiation of bankruptcy proceedings in the case where the debts are no longer covered by the assets. Therefore, the legislature in requiring the directors to start bankruptcy proceedings as soon as the annual balance sheet or an interim balance sheet discloses an excess of debts over the assets, clearly aims primarily at preventing that the company assets necessary for satisfying the creditors are not available for this purpose. The intention is to preserve the company assets for the benefit of the creditors so as to allow them to receive payment and to protect them against excessive losses as a result of the bankruptcy. This protection alone, which is clearly the primary purpose of the Act, cannot assist the plaintiff, however, for the plaintiff’s claim for damages is not based primarily on the ground that owing to the delay in initiating bankruptcy proceedings the assets available to the creditors have been diminished and that therefore his claim lost totally or partially. Instead the plaintiff holds the defendant liable in the first place for the fact that the plaintiff still gave a credit to the private company, the debts of which exceeded the assets. According to § 823 II BGB the defendant is only liable to pay damages for loss occasioned thereby if § 64 I GmbHG protects the interests of the creditors also in this respect, i.e. if it seeks to protect them quite generally against the dangers resulting from the continuing operation of a company the debts of which exceed its assets. It is true that the community is in fact protected in this respect as well as by the existence of § 64 GmbHG. This fact alone cannot suffice, however, to attribute to § 64 GmbHG the character of a protective act having such an extensive range. For this purpose not the effect of the law but its substance and aim must be considered, more particularly whether the legislature intended to provide such a far-reaching protection or at least accepted it [references]. This cannot be assumed, however. Confidence in the solvency and the creditworthiness of another does not enjoy special protection in trade and commerce. He who makes a mistake and suffers a loss must normally prove that § 826 BGB or § 823 II BGB in conjunction with § 263 of the Criminal Code applies, unless he can rely on contractual claims. The Act does not indicate that a different rule is to apply in relations with private companies and that those dealing with private companies are to be given more extensive protection. Gadow and Weipert [reference] and Bergenroth justify the need for special protection of the public on the ground that public and private companies are legal entities whose shareholders are not liable for the debts of the company with their entire assets. It must be admitted that a need exists for this reason to protect the creditors. The legislative history of the Act concerning Private Companies [GmbHG] shows that the fact that only the assets of a private company are liable for its debts led to the provision that bankruptcy proceedings are to be begun against the company not only if the company is insolvent, but also if its debts exceed its assets [references]. No indications exist that in enacting § 64 I GmbHG the legislature also intended, in addition to the protection mentioned above, to protect the creditors against giving credit to a private company which is overburdened with debts or from entering into business relations with it at all. If they suffer damage in this way such creditors, like creditors of an individual or of a partnership, are therefore restricted to the protection offered by § 826 BGB and by other provisions such as § 823 II BGB in conjunction with § 263 of the Criminal Code, leaving aside any contractual claims.

It follows that the plaintiff can only claim damages against the defendant on the basis of § 823 II BGB in conjunction with § 64 I GmbHG if, and to the extent that, at the time when his claim for the payment of goods sold arose he would have participated in the distribution of the assets. It is not clear whether and to what extent this was the case. Certainly the plaintiff cannot, on this interpretation of the law, contrary to the view of the Court of Appeal, receive the full price of the goods sold, which he claims as damages. Therefore, the judgment appealed against cannot be maintained, having regard to the reasons given by the Court of Appeal . . .

Notes to Cases 129-131

1. In all the systems under comparison a rich case law can be found under the heading of tort liability for breach of statute, but there is no need to give more than a few illustrations. For, as Professor Medicus has said about German law (op. cit., no. 621), each case turns on its facts and the construction of the wording of the statute in question. Yet, some basic principles do exist and they have been discussed briefly in Ch. 4, section A1(a), above. For English law see Clerk and Lindsell, On Torts (18th edn. ch. 11), and the older but seminal article of Glanville Williams, ‘The Effect of Penal Legislation in the Law of Tort,’ 23 MLR 233. For American law see Prosser, Wade, and Schwartz, 205ff..

2. As we have already noted, German judges are spared the need of discussing whether the legislator intended to allow a civil remedy when a particular statute has been breached—§ 823 II BGB providing, subject to what we said above, a clear positive answer. But the court still has to discover the purpose of the statute: Was the mischief that occurred the one the statute wished to avoid? Was the plaintiff the person the statute wished to protect? (For an illustration see BGHZ 108, 134.) Cases 107–109 give some idea of how the German courts tackle these problems; but other decisions, reproduced elsewhere, have also discussed this problem. (See, for example, cases 9 and 54.)

3. The search for the purpose of the statute only thinly disguises the value-judgments that have to be made in each case by the court. Policy thus strongly determines the result, though it is done under the guise of statutory construction. Thus, where more valuable interests are at stake (e.g. life and not just the protection of property) the courts tend to construe the statute in a way that is favourable to the plaintiff (cf. Kornan v. American Dredger Co. 355 US 426, 78 S. Ct. 394 (1958) with Gorris v. Scott LR 9 Exch. 125 (1874)). And where certain types of plaintiffs are involved (e.g. children, workmen etc.) the courts will, again, have their interests very much at heart when ‘construing’ the relevant enactments. (See Prosser, Wade and Schwartz, 246.)

4. Courts often talk of the ‘purpose’ of a statute, but is there any reason why a statute should not have more than one? (See, for example, Hines v. Foreman (Tex. Comm’n. App. 1922) 243, SW 479.) Could it be that looking for ‘one’ aim or purpose makes it easier to limit liability, if that is what the judge wishes to achieve?

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