Litigation
for small businesses and start-ups

A court order for payment can be a better route than a court claim. It is cheaper and faster. However, it only helps if you can assume that the debtor will not raise any objections to the debt. If the debtor has already disputed that the debt exists, the court order for payment will only cause delay.

If you are sued, you should act immediately. Under German law, once the claim has been served on you, you generally have two weeks to state whether you intend to defend it. If you do not, you risk a default judgment, which is immediately enforceable. If the claim has been brought before a Landgericht (regional court), legal representation is required by law. In some circumstances, you must also contact your legal expenses or liability insurer without undue delay. This depends on the terms of your insurance. Whether you defend the claim, acknowledge it or seek a settlement is decided after an initial review of the prospects of success and the costs.

Under German law, court fees and statutory lawyers’ fees depend on the amount in dispute. As a rough guide for the first instance: with EUR 10,000 in dispute, court fees come to about EUR 850 and lawyers’ fees to around EUR 1,600 per side. With EUR 50,000 in dispute, the figures are about EUR 1,900 and EUR 3,400 per side, in each case plus VAT, expenses and, where applicable, expert fees. The losing party pays everything, including the other side’s lawyers’ fees at the statutory rate. If a party succeeds only in part, the costs are split. The claimant must pay the court fees in advance. The statutory lawyers’ fees are the minimum amount. Depending on the amount in dispute and the work involved, they do not always cover the actual cost of your own lawyer. Each side must itself bear any lawyers’ fees that exceed the statutory fees.

If you have received a cease-and-desist letter, you should act quickly. Take the deadline it sets seriously. However, you should not simply sign the cease-and-desist declaration without reviewing it. The declarations provided are often drafted more broadly than necessary. In most cases, it also makes sense to review the facts. If the cease-and-desist letter is justified, in most cases you will also have to bear the costs. However, German unfair competition law makes exceptions for small businesses for some infringements.

Under German law, managing directors can become liable both to the company and to third parties. The standard for liability towards the company is generally ‘the due care of a prudent businessman’. Liability towards third parties and the state usually arises only where this is expressly provided for. Examples are taxes or social security contributions that were not paid over (also a criminal offence), payments made after grounds for insolvency have arisen, and delay in filing for insolvency. In compliance cases, liability can also arise if adequate precautions were not taken. D&O insurance can cushion some risks, but it is no substitute for managing the company properly.