GERMANY | CORPORATE | Duties of the Management with regard to the Economic Stabilisation Fund Act (WStFG)

In the wake of the corona pandemic, the German economy is facing one of the greatest – if not the greatest – challenges since the founding of the Federal Republic of Germany. The crisis is causing enormous uncertainty among companies in the real economy as well as on the financial markets. At the same time, it also brings with it special legal obligations for the management (cf. our blog post on “Relevance of SARS-CoV-2 (coronavirus) for the functional specifications of the management”). To mitigate the economic and social consequences which the pandemic has already caused and will continue to cause, the Federal Government and the states are providing extensive economic aid (cf. Overview of all support measures of the federal government and each individual federal state and Newsletter “Capital in Crisis – Federal Government establishes Economic Stabilization Fund”).

The Act on the Establishment of an Economic Stabilisation Fund (Economic Stabilisation Fund Act – WStFG) which came into force on 28 March 2020 provides for the establishment of a special fund “Economic Stabilisation Fund – WSF” without legal capacity to support the real economy. By means of the WSF – flanking the special programmes of the Kreditanstalt für Wiederaufbau (KfW) – the necessary measures to stabilise the national economy and secure jobs are to be implemented for the period until the end of 2021.

State aid is, though, neither automatic nor (legally) free of charge. This is because the Ministry of Finance decides on the stabilisation measures of the WSF (in agreement with the Ministry of Economics) only at the request of the company concerned, and only after due consideration of a) the importance of the company for the German economy, b) the urgency, c) the effects on the labour market and competition and d) the principle of using the WSF’s funds as economically and thriftily as possible. The benefits are to be made subject to conditions and requirements for the company. Both have significant legal implications for the duties of the management boards of companies that might be dependent on the WSF’s assistance. In order not to be exposed to allegations of breach of duty and possibly enormous liability risks later on, the members of the management board and the supervisory board or the managing directors of companies that can and possibly have to resort to the financial support of the WSF should observe these duties exactly.

Background of the WStFG

The WStFG takes up where a tried and tested package of laws that was passed in the course of the financial crisis to support financial companies in particular has been left off. Hence, much is already known from the Financial Market Stabilisation Fund Act (FMStFG) and the Financial Market Stabilisation Acceleration Act (FMStBG) from 2008. As a result of the WStFG, not only financial companies but also companies in the real economy are now eligible for stabilisation measures. For this purpose, the WSF was established parallel to the already existing financial market stabilisation fund.

The WStFG is divided into two articles. Article 1 extends the FMStFG into the Act establish-ing a Financial Market and Economic Stabilisation Fund. Article 2 develops the FMStBG into the Economic Stabilisation Acceleration Act.

Although the legislative package thus affects companies in both the financial sector and the real economy of all legal forms, the following comments focus on companies in the real economy in the form of public limited companies. However, the considerations are (to a large extent) transferable to companies in the financial sector and companies of other legal forms.

Legal implications for the management – avoidance of liability

Pursuant to section 76 (1) of the German Stock Corporation Act (AktG), the management manages the stock corporation (AG) under its own responsibility. In managing the company, he has to act in accordance with the diligence and due care of a prudent manager, section 93 (1) sentence 1 AktG. The same applies in principle to the managing director of a GmbH, section 43 (1) German Limited Liability Companies Act (GmbHG); however, he does not act without instructions but is subject to the instructions of the shareholders’ meeting. If the management violates the statutory duties of care incumbent on it, it is obliged to compensate the company for the resulting damage (section 93 (2) AktG, section 43 (2) GmbHG).

In principle, the management is entitled to further entrepreneurial discretion (so-called business judgement rule). A breach of duty – and thus liability – on the part of the manage-ment board is excluded in any case if it (i) could reasonably assume, when making a business decision, (ii) on the basis of appropriate information (iii) acted in the best interests of the company, section 93 (1) sentence 2 AktG. This applies not only to stock corporations, but in principle also to other companies. However, the managing director of a GmbH is, due to the fact that he is bound by instructions in the case of difficult discretionary decisions, to a much greater extent obliged than the management board of an AG not to make the decision himself, but to leave it to the shareholders’ meeting.

The broad entrepreneurial discretion finds its first limitation in the general obligation to secure the existence of the company and to avert damage. The management is legally obliged, as far as possible, to ensure the long-term existence of the company and its sustained profitabil-ity. Furthermore, it is generally obliged to avert damage to the company as far as possible. In addition, the management is obliged to ensure compliance with the law and the company’s internal law, such as the articles of association.

With regard to the WStFG, this entails for the management:

3.1. Obligation to apply for state aid?

Basically, the question arises whether and from which point in time the management board is legally obliged to apply for state support by the WSF. If the existence of the company is endangered and can only be secured by state aid of the WSF, the management board has to act in time within the scope of its obligation to secure the existence of the company and has to file a corresponding application. In any event, the Executive Board is obliged to set up a monitoring system for this purpose to identify any threat to the company’s continued exist-ence in good time, in accordance with Section 91 (2) AktG. When assessing the threat to the existence of the company as a going concern, it will also have to be taken into account whether there may be other options for securing the existence of the company, at least temporarily, which (initially) appear to be preferable to the WSF. In addition to other financing options, these may include other federal or state aid programs. Furthermore, it must be taken into account that the obligation to file for insolvency is suspended under certain conditions at least until 30 September 2020 under the Act to Mitigate the Consequences of the COVID-19 Pandemic, which came into force on 28 March 2020.

If the management board remains inactive despite the continued existence of the company being at risk, and if the company suffers causal damage (up to and including the destruction of its existence) as a result of its inactivity, it may be liable for the damage caused (although in this constellation the calculation of damages may well prove challenging). In the current economic environment, management board members are more obliged than ever to keep a close eye on the liquidity of their company and to take any necessary measures. Under certain circumstances, this can mean that the management board – if liquidity for its own company is not available on the free market or not available at comparable conditions – must apply for state aid from the WSF.

If, in the course of the audits, it turns out that the application for state aid from the WSF is useful or necessary for the company, the management must also take into account that the granting of state aid will regularly be linked to requirements and conditions which the company must fulfil (immediately). Depending on the type of state aid applied for, these requirements should be determined in accordance with the principle of proportionality (cf. explanatory memorandum in the government draft of the WStFG on Article 1 section 25 WStFG). The legislator underlines there that in the case of a guarantee, for example, “only” the agreement of a fair market consideration is important, while in the case of other stabilisation measures such as state participation, more far-reaching requirements and conditions are considered, such as limitations on the distributions and the remuneration of the members of the executive bodies (this is reminiscent of the limitation of the remuneration of the board of managing directors, e.g. at Commerzbank, due to the state participation in the financial crisis). The management board is therefore also obliged to carefully examine which type of state aid from the WSF is requested and is sufficient to ensure the continued existence of the company.

The management board will also be able to influence the stringency of the requirements through negotiations. It should therefore, to the extent possible, influence the conditions and requirements to be fulfilled by the company following the granting of state aid through negotiations with the state authorities.

3.2. Stabilization measures- follow-up obligations

State stabilisation measures under the WStFG are subject to conditions, see Article 1 section 25 WStFG. Companies that take advantage of WSF support measures must “guarantee a solid and prudent business policy. In particular do they have to make a contribution to the stabilisation of production chains and to securing jobs.”, Article 1 section 25 (2) sentences 1 and 2 WStFG. To ensure these conditions, requirements can be agreed with the company, Art. 1 section 25 (2) sentence 3 WStFG.

The guarantee to be provided for a solid and prudent business policy was also already provided for in the previous section 10 (1) FMStFG for assisted financial undertakings. The Act still does not contain a definition of this. Although the German Stock Corporation Act also mentions business policy in Section 90 of the Act, it is still disputed what exactly is meant by this. For financial undertakings, however, solid and prudent business policy has been and is specified by the requirements of section 10 (2) nos. 1 to 8 FMStFG in conjunction with section 5 (2) FMStFV. It is to be expected that the Ministry of Finance, in coordination with the Ministry of Economics, will issue a statutory order for real economy companies corresponding to the FMStFV pursuant to section 25 (3) WStFG. This will contain more detailed provisions, in particular as regards the requirements to be met by the beneficiary companies in the real economy concerning

1. the use of the funds raised
2. the taking up of further loans
3. the remuneration of executive bodies
4. the distribution of dividends
5. the period during which the requirements are to be fulfilled
6. measures to avoid distortion of competition
7. industry-specific restructuring requirements
8. the manner in which the public authorities involved and the Fund are to be held accountable
9. a declaration of commitment by the management to comply with the requirements in clauses 1. to 6.
10. other conditions, as far as these are appropriate.

As in the case of the FMStG, the legislator still did not want to lay down uniform requirements for a solid and prudent business policy that applied equally to all companies. Rather, the requirements should be determined on a case-by-case basis, Art. 1 section 25 (3) sentence 2 WStFG. The explanatory memorandum to the government draft of the WStFG explicitly mentions the Federal Government’s Public Corporate Governance Code, whose standards can serve as a guide. Specifically, the requirements can be defined between the beneficiary company and the state by contract, voluntary commitment or administrative act. The legal consequences for a company in the event of non-compliance with the agreed and specified requirements can and in all likelihood will also be determined by this statutory instrument, Art. 1 section 25 (3) WStFG.

Within the framework of the management of the company, the management board must comply with the above conditions specified by the WStFG as well as any conditions agreed to safeguard them or ensure their compliance, if necessary by means of organisational precautions and measures. If the management board does not fulfil these statutory obligations, it is in breach of its duty of legality. If the company incurs (causal) damage as a result, the management board is also subject to liability towards its company in this respect.

If necessary, the management board, with the consent of the supervisory board, must issue and publish a corresponding declaration of commitment to comply with the requirements imposed on the company, Art. 1 section 25 (3) sentence 1 no. 9 WStFG. As in the past, Art. 2 section 3 (1) WStFG clarifies as a precautionary measure that the provisions of the German Stock Corporation Act on the responsibility of the management board to manage the stock corporation on its own responsibility do not conflict with the permissibility and effectiveness of such a declaration of commitment. Since the WSF can, however, “only” set abstract guidelines for management decisions and not make individual specific transactions depend-ent on its approval, there is some evidence to suggest that the declaration of commitment would generally not violate the principle of independent management even without the legal clarification.

Further, it has also been clarified in Art. 2 section 3 (2) WStFG that the management board is also entitled and obliged vis-à-vis the company to comply with the declaration of commitment. This is primarily intended to avoid a dilemma of duties of the management board in external and internal relations. At the same time, however, it also becomes clear here: if the management board acts in contravention of the declaration of commitment made by it and this results in damage to the company, the management board is threatened with liability.


The management must continuously monitor and assess whether the continued existence of the company is at risk. If this is the case, it must also verify, among other things, whether and which state aid can or must be claimed. In negotiations with the relevant government agencies, it must seek to alleviate requirements and conditions for the company as far as possible. After having been granted state aid from the WSF, it must ensure that all conditions and requirements imposed on the company are complied with and, if necessary, make appropriate organisational arrangements for this purpose. In particular must it observe the declaration of commitment that may be required of it.


Dr. Daniel Walden
Martin Lawall

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