When pledges of rights expire: Directors’ and officers’ liability due to failure to exercise pledges of rights
Key practical tips on how to avoid liability risks.
Directors’ and officers’ liability arises not only from wrong decisions, but also from omissions in breach of duty. Transferred to pledges of rights, this means that anyone who holds valuable collateral as a governing body and fails to enforce or realize it exposes themselves to a personal liability risk.
Starting point: What do pledges of rights do?
Pledges are fully-fledged security interests with direct access to the secured property Anyone who does not realize an existing pledge of rights is in effect waiving an existing enforcement right — this regularly leads to an avoidable loss of assets and to unmanageable risks in terms of insolvency avoidance.
Duties of executive bodies: Asset protection is a duty, not an optional extra
The Management Board (§ 93 AktG), managing directors (§ 43 GmbHG) and Supervisory Board (§ 116 in conjunction with § 93 AktG) must secure and realize assets. This includes in particular
- Agreement of effective pledge of rights,
- Securing the necessary ownership or legal position,
- Recycling when a deposit is due — quickly, documented and legally compliant.
Anyone who “parks” claims or securities, does not initiate proceedings or postpones decisions without a comprehensible reason risks damages — usually claimed by the administrator in the event of insolvency.
Business Judgment Rule (BJR): Protection only with ex ante consideration
The BJR applies when
- a sound basis of information was collected
- alternatives are realistically examined and
- the decision was documented.
Failure to realize an asset without a reliable assessment is not covered by entrepreneurial discretion. A public auction by a publicly appointed, sworn auctioneer is usually an obvious, well-documented option.
The task of the Supervisory Board is to Inquire, follow up, set deadlines
If the Supervisory Board sees unused pledges of rights, it must take action: Demand clarification, decide on measures, set deadlines, demand reports. As current cases show, failure to act can lead to personal liability.
D&O insurance (manager liability) is not a free ride
In practice, D&O policies often pay out late and in dispute. Prevention (clean ex-ante documentation, prompt recovery) is usually economically superior.
Guidelines for practice
- Take BJR seriously: Non-realization of valuable pledges of rights is regularly not covered if alternatives — in particular the public auction — have not been seriously examined and documented ex-ante.
- Liability by omission: Anyone who allows assets to lapse is acting in breach of duty.
- Legal ideal solution: The public auction is the legally provided and state-privileged method of realization (in particular § 338 BGB, § 1235 BGB; knockdown as a final act of sovereignty). It creates legal peace and transparency.
- Signal effect: unrealized pledges of rights signal weakness. The public auction shows strength, legitimacy and transparency.
- Time is of the essence: delays devalue securities and increase liability risks.
Implementation with Deutsche Pfandverwertung
“If you don’t use your pledge of rights, you give away value. Deutsche Pfandverwertung turns collateral back into assets.”
- Legally compliant preparation (deposit maturity check, information and notification processes),
- Public auctions are conducted by publicly appointed, sworn auctioneers,
- Documentation of the ex-ante assessment (suitable for BJR),
- Transparent award as a final act of sovereignty — without renegotiation (renegotiation).
BJR checklist before (non-)utilization
- Information situation: value of collateral, maturity of collateral, market approach, legal framework collected and documented?
- Alternatives: public auction, sale by private treaty (if permissible in accordance with § 1222 BGB) Recovery — comparison of options with opportunities/risks and costs?
- Documentation: Are the reasons for the decision, timetable, deadlines, responsibilities, supervisory board involvement (if relevant) recorded?
- Implementation: commissions (publicly appointed, sworn auctioneer), advertisements/information, data room/documents, communication with parties involved?
- Monitoring: milestones, reporting obligations, decision triggers (e.g. minimum bid, market feedback), escalation paths?
- Note
This information does not replace legal advice in individual cases.
Decisive factors include:
- 93 AktG, Section 43 GmbHG, Section 116 AktG, Section 60 InsO, Sections 1204 et seq. BGB, Section 1235 BGB, Section 932 BGB, Section 464 HGB, Section 562 BGB and BGH, judgment of 27.10.2022 — IX ZR 145/21.
We are publicly appointed, sworn auctioneers (auctioneers) with over 15 years of experience in the realization of legal and contractual pledges of rights in legally compliant online auctions with live stream.
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Further articles on the topic
Verwertung von verpfändeten Unternehmensanteilen oder Rechten im Insolvenzfall
Sonderrechte des Gläubigers bei Insolvenz des Schuldners
Pfandrechte an Geschäftsanteilen: optimiertes Verwertungsinstrument in der Forderungsrealisierung durch Anteilsverkauf
Pledge of rights — everything you need to know explained. A pledge of rights can relate to things, i.e. physical objects, as well as to rights of any kind, such as company shares, patents, securities, IP rights, domains, licenses or trademark rights.
