Last year the Supreme Court handed down a significant decision regarding the liability and duties of supervisory board members. Board members in this case escaped liability because it could not be proved that their omissions had adversely affected the company.
During bankruptcy proceedings, the trustee of a limited liability company sued the supervisory board members for damages. The trustee argued that the board (which was established voluntarily) had caused significant company losses because its members deferred filing for insolvency when the company was obviously in decline.
The board members were alleged to have failed to:
- commence bankruptcy proceedings;
- convene the general assembly;
- request that the parent company subsidize it; and
- hold supervisory board meetings in times of crisis.
Decision
First, the Supreme Court noted that the law does not distinguish between the rights and obligations of voluntary and legally imposed supervisory boards. Second, the court stated that the duty of the supervisory board is to fulfil its obligations with due diligence and care. Its liabilities are not the same as those of managing directors. Rather, supervisory board members are limited to:
- monitoring management;
- fulfilling certain obligations in the event of a company crisis;
- inducing the managing board members to file for bankruptcy proceedings when appropriate; and
- examining annual financial statements.
Furthermore, the range of activities of supervisory board members is substantially less than that of the managing directors because of the part-time nature of the role. The court pointed out that the supervisory board is neither a superior of the board of directors nor a 'super' management board.
The court also made clear that the requisite standard of due diligence and care for a supervisory board depends on the business sector in question and other factors such as the company's size and market share. Members of the supervisory board must have the knowledge and experience necessary to perform their respective duties in a competent manner.
The court's decision is particularly interesting in light of the recently released Corporate Governance Code, in which misdemeanours of the supervisory board are examined from an ex ante viewpoint.
For further information on this topic please contact Gerhard Hermann or Reinhard Kautz at Schönherr Rechtsanwälte OEG by telephone (+43 1 534 37 478) or by fax (+43 1 534 37 6130) or by email ([email protected] or [email protected]).