Director’s Competition Ban in the Insolvency of the Company

Does the opening of insolvency proceedings of a company not also trigger a director’s contractual competition ban? OLG Rostock decided on a case where the director cancelled his employment but only to experience that the bankruptcy manager later sued him for breaking contractual agreements (re 4 W 4/20).

Managing director's poaching of customers falls under competition ban

Director Terminated his Employment and not his Directorship

The director of the GmbH, respondent in court, terminated his existing employment relationship with the company after the opening of the insolvency proceedings on its assets. He did not simultaneously resign his office as director. During the company's insolvency, the defendant founded another company in the same sector, offered identical services and made attempts to poach customers of the company. The insolvency administrator obtained a temporary injunction against the defendant to stop the competing activity on the grounds that the legal prohibition of competition would apply as long as the defendant was still the director of the company.

OLG Rostock Rules Competition Ban is Correct

The OLG Rostock ruled in favour of the insolvency administrator. It confirmed that the prohibition of competition resulting by law - analogous to §88 I cl. 1 AktG - from the position of the GmbH director does not expire with the opening of insolvency proceedings on the assets of the company, but only with the termination of the office of the director. This is because the opening of insolvency proceedings does not affect the position of the executive body as such. Since only the termination of the position of the executive body makes the non-competition clause invalid, the non-competition clause remains unaffected by the opening of insolvency proceedings.

The background to this is that even after the opening of insolvency proceedings a specific special relationship between the company and the director remains in place, which obliges the director to continue to care for the interests of the company. It does not follow from §80 InsO that only the insolvency administrator may be active for the company. It is rather recognized that the executive duties of the director towards the insolvent company continue to exist. This is because the transfer of the power of disposal to the insolvency administrator does not mean that the company is generally no longer able to engage in legal transactions with third parties, but only that a concluded transaction does not constitute a claim of the third party against the assets.

Hint

First of all, when you are appointed as a director and you are thinking of changing this situation, do not forget to open your mind to schizophrenia… You have two independent legal scenarios that interact and nevertheless both have to be considered: 1) the employment, 2) office of the director.

A competition ban ends only with the termination of the employment.

In this context, it should also be noted that, depending on the circumstances of the individual case, a resignation of the director after the opening of insolvency proceedings on the assets of the company can be considered as "untimely". Some court rulings have qualified the resignation of the director after the opening of insolvency proceedings as an abuse of law if the company becomes without management as a result. This is therefore of particular relevance for one-man companies. In order not to expose themselves to claims for damages, directors should have any resignation carefully examined in such insolvency cases. Best would be in consultation / collaboration with the bankruptcy manager.

Related Articles:

Competition Ban for Directors

Liability of Director not Knowing of Bankruptcy when the Cause is not in his Competence

When to give notice to director

Immediate Termination of a Director’s Employment Contract for Compliance Violations

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