A Clean Exit Is Not the Same as a General Release

The managing director leaves.

The shareholders grant discharge.

The exit agreement adds: no further claims. Everything settled.

Six months later, a social security audit identifies an issue from his term of office.

The company still has to deal with the liability.

But its potential recourse against the former managing director may already be gone.

That is why a clean exit and a general release are not the same thing.

Everyone wants a clean break

When a managing director leaves a German GmbH, both sides usually want certainty.

The director wants the past closed.

The company wants a complete handover and a clean management transition.

So several matters are often dealt with at once:

• removal from office;
• termination of the service agreement;
• discharge;
• settlement or waiver of claims;
• handover; and
• release from personal guarantees.

All understandable.

But these steps perform very different legal functions.

Combining them under a broad “all claims are settled” provision can go much further than intended.

Some risks only show up later

Not every issue from a managing director's term of office is visible when he leaves.

A tax audit may result in additional payments.

A social security audit may take a different view of past arrangements.

An accounting issue may only become apparent during the next annual closing.

A legacy contract may generate a claim months later.

The company may still have to deal with that external liability.

Whether it can then seek recourse against the former managing director is a separate question and will, of course, depend on the relevant liability requirements.

But if the company has already released those claims, that second layer may have disappeared.

The external liability remains. The internal recourse may be gone.

Discharge and a general release are not the same thing

Under German GmbH law, the shareholders decide on the discharge of managing directors.

Discharge is not merely ceremonial.

As a general principle, it can prevent the company from later asserting claims relating to matters that were known to the shareholders or recognisable upon proper review of the information and reports available when discharge was granted.

A contractual general release may go further.

If the company and the director agree that all claims arising from his corporate office and service relationship – known or unknown – are settled, they are doing more than granting discharge.

They are contractually reallocating risk.

In short:

Discharge addresses the identifiable past.

A general settlement may – within the limits of mandatory law – extend to unknown risks.

The key question is therefore not simply:

“Will the director receive discharge?”

It is:

What exactly should be closed by this exit?

A release also requires the right corporate mechanics

There is another point that is easily missed.

Under Section 46 no. 8 German Limited Liability Companies Act (GmbHG), the shareholders decide on the assertion of claims against managing directors.

That allocation of responsibility also applies, as a general matter, to the opposite decision: settling, waiving or comprehensively releasing such claims.

A general settlement is therefore not simply another agreement for the remaining management to sign.

The appropriate shareholder decisions are required.

If the departing managing director is also a shareholder, an additional issue arises.

Under Section 47(4) GmbHG, a shareholder generally cannot vote on a resolution granting himself discharge or releasing him from an obligation.

In closely held companies, this can materially affect the voting mechanics.

The relevant question is therefore not only:

What majority do we need?

But also:

Who is actually entitled to vote?

Close what is known. Reserve what is not.

The alternative is not to keep every conceivable claim open indefinitely.

The departing director also has a legitimate interest in obtaining certainty.

The better approach is to define the perimeter.

Reviewed matters can be closed.

Specific disputes can be settled.

Known claims can be deliberately waived.

But where uncertainty genuinely remains – for example because a tax or social security audit is still pending – those areas can be carved out from a broader release.

That is not an accusation of misconduct.

It simply means:

Do not release today what cannot reasonably be assessed today.

Keep office, contract and handover separate

A managing director exit typically involves several legal layers.

Removal or resignation deals with the corporate office.

The service agreement must be terminated or settled separately.

Discharge and potential liability claims require their own analysis.

And then there is the practical handover.

The handover point sounds simple but regularly creates unnecessary risk.

If an agreement signed today confirms that all documents, passwords, devices and access rights have already been returned when the handover is scheduled for next week, the company is confirming a fact it has not yet verified.

The cleaner sequence is:

Define the obligations.

Complete the handover.

Document it.

Then confirm completion.

If something still needs to happen, draft it as an obligation – not as a fact that supposedly already occurred.

Personal guarantees need separate treatment

A departing managing director may also have provided personal security for company obligations.

A bank guarantee is the obvious example.

The director will understandably want to be released.

But the company cannot simply cancel a guarantee given to a bank.

The creditor's cooperation will generally be required.

The exit agreement should therefore distinguish between security the company can release itself and security for which a third-party release must be obtained.

It should also specify what the company is required to do until that release has been secured.

An obligation to seek a release is not the same as guaranteeing that a third party will grant one.

A general release is not a legal eraser

Even broad settlement language has limits.

German GmbH law contains mandatory creditor-protection rules that can restrict the company's ability to waive certain claims against managing directors.

A clause stating that “all known and unknown claims are settled” therefore does not automatically make every possible liability disappear.

The question is not only:

How far do the parties want to go?

It is also:

How far are they legally allowed to go?

Precision beats maximum protection

There are two bad extremes.

A blanket release before the company understands its risks.

Or no meaningful closure for the departing managing director at all.

A well-structured exit sits between them.

Reviewed matters are closed.

Risks that cannot yet be assessed are specifically reserved.

Handover and personal security are dealt with separately.

And the correct shareholder decisions are taken.

A clean managing director exit does not mean that everything disappears.

It means being precise about what is closed – and what intentionally remains open.