Members of the management board of an Austrian stock corporation are appointed for a definite period and may be recalled before the expiration of their tenure only for cause (Section 75(4) of the Stock Corporation Act).

In addition to a no-confidence vote by the shareholders' meeting and an inability to (continue to) perform their function as a diligent businessperson, grave misconduct is one of the reasons that justify the immediate recall of a management board member.

In a decision handed down in early 2012 (6 Ob 83/12 t), the Supreme Court took the opportunity to confirm and outline a number of criteria in connection with the recall for cause of a board member.

The court held that, in general, the question of whether certain behaviour constitutes grave misconduct, and thus justifies an immediate recall, must be verified on a case-by-case basis. This in turn means that decisions on this question are rarely subject to Supreme Court review, as they normally do not constitute "a question of law of material importance" - one of the procedural requirements for an appeal to the Supreme Court.

In the case at hand, the board member attempted to influence a decision in relation to the choice of lending bank for the company. The board member exerted pressure on an employee with the aim of securing the selection of a particular bank. The bank had apparently indicated to the board member that it would be willing to waive a prepayment penalty under a loan taken out by the board member if the business relationship with the company remained stable or were even extended.

When the loan offer by the bank in question turned out to be the most expensive, the board member asked that additional offers be obtained; he hoped that these other offers would turn out to be even more expensive. He also instructed the employee not to report to his superior on the contemplated deal, as such information would be passed on to the chairman of the supervisory board.

For the court of first instance and the appeals court, this constituted grave misconduct. The Supreme Court agreed with the lower courts, holding that this conclusion was justified and not something that it felt needed to be corrected to ensure "consistent application of the law". Furthermore, the Supreme Court affirmed that under its case law, a lack of transparency towards the supervisory board can justify a recall for cause, but stressed that this will depend on the facts of the specific case.

Finally, the Supreme Court held obiter that case law relating to the dismissal of employees, which the board member had apparently put forward in support of his position, could not be taken automatically to apply in the context of the recall of a management board member. While the court did not elaborate further on this topic, this indicates that grounds that justify the dismissal of an employee under regular employment laws may not necessarily constitute grave misconduct of a board member - and vice versa.

For further information on this topic please contact Florian Kusznier at Schoenherr by telephone (+43 1 534 37 0), fax (+43 1 53 43 76100) or email (f.kusznier@schoenherr.at).

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