Clarification by court: In a thoroughly detailed judgment, the Higher Regional Court [Oberlandesgericht – OLG] of Munich explains at great length all the mistakes supervisory board members can make when entering into a consultancy agreement with their company that includes bonus payments.

Facts of the case

The plaintiff was a member of the supervisory board of the defendant, a listed stock corporation (hereinafter referred to as the “Company”). In 2017, the Company’s major shareholders negotiated with “S-Group” on the sale of its mechanical engineering division. However, this sale never materialised. In 2018, the plaintiff took the office of chairman of the supervisory board of the defendant. In order to resume the negotiations with “S-Group” and handle the prospective sale, the defendant formed a team consisting of the plaintiff, V (the sole member of the defendant’s management board) and B (a third-party consultant). As part of the negotiations, this team prepared all drafts and proposals, with the plaintiff heading the team until the sale in the middle of 2018 and being in charge of all communications with “S-Group”, of informing parts of the supervisory board about the progress of the negotiations and corresponding with the notary’s office and the management of the mechanical engineering division. The prospective sale was not discussed at meetings of the supervisory board because two members of the supervisory board of the defendant were employees of the mechanical engineering division that was to be sold and any unnecessary turmoil was to be prevented.

Following the sale, the plaintiff claimed a bonus of EUR 30,768.64 from the defendant, alleging this had been agreed during multiple off-record discussions outside supervisory board meetings with the consent of the two major shareholders.

The District Court [Landgericht – LG] Munich I dismissed the complaint, and the OLG Munich upheld this dismissal on appeal by the plaintiff.

Decision

The OLG Munich found that, firstly, the plaintiff was not entitled to the claim asserted because he had not even submitted that a consultancy agreement had been entered into with the defendant to this effect. The reason is that, according to Sec. 78 Para. 1 Sentence 1 of the German Stock Corporation Act [Aktiengesetz – AktG], the defendant should have been represented by its management board in such an agreement. However, the plaintiff confined himself to saying that the agreement to this effect had been entered into between him and the supervisory board of the defendant.

But this was not decisive because any such agreement would be null and void under Sec. 113 AktG, Sec. 134 of the German Civil Code [Bürgerliches Gesetzbuch – BGB]. That is because the specific activities the plaintiff performed on the basis of the (alleged) agreement were not outside the scope of his tasks as a member of the supervisory board as defined under Sec. 114 Para. 1 Sentence 1 AktG. However, according to the settled case law of the German Federal High Court of Justice [Bundesgerichtshof – BGH], consultancy agreements of a joint stock corporation with a member of its supervisory board for activities the supervisory board member is already required to perform because of that member’s position as officer, which also encompassed the obligation to provide precautionary advice including monitoring services, are not capable of being approved under Sec. 114 AktG. The Court found that only contracts for services relating to subjects of a particular field of expertise are capable of being approved, provided that the consultancy services to be provided thereunder do not also relate to general, overarching matters of company policy that fall within the scope of tasks of the supervisory board. Accordingly, the BGH found, the provision of advice to the Company on entering into share purchase agreements for all or any portion of the shares in the target company is included in the scope of tasks of a supervisory board member, because such advice also concerns overarching matters of company policy and general topics of company management. Therefore, if a contractual agreement was entered into as aforesaid, it would constitute an inadmissible agreement on remuneration pursuant to Sec. 113 AktG and would be null and void pursuant to Sec. 134 BGB.

In addition, the OLG also upheld the finding of the District Court that regardless of that, there was also no resolution passed by the supervisory board as required under Sec. 114 Para. 1 AktG. The reason is that, according to the settled case law of the BGH and the view generally taken in the literature, it is for reasons of legal certainty that resolutions of the supervisory board can be adopted only explicitly and not tacitly or by conduct implying an intent. It must be possible to trace how a resolution came about. This would not be possible in the case of resolutions adopted tacitly or by conduct implying an intent, because then it would not be possible to determine whether there was a quorum and how many votes were cast for or against the resolution and whether there were any abstentions and if so, how many. However, it is undisputed that there was no express resolution of the supervisory board.

Comment

The level of detail of the judgment suggests that the Court had identified a need to explain the ABC of supervisory board law even at the management level of listed stock corporations. This appears to be the only conceivable reason why the OLG explained the alternative cases regarding the scope of duties incumbent on supervisory board members and regarding the absence of a resolution of the supervisory board with the same level of detail as the absence of an agreement with the defendant. In any case, it is refreshing to see the clarity with which the Court explains the various criteria an agreement has to meet if it is to include a bonus for a supervisory board member. The fact that the case at hand lacked all of the criteria for a valid agreement made it a textbook example to learn from.

Higher Regional Court [Oberlandesgericht – OLG] of Munich – Judgement dated 21 February 2024 (7 U 2211/23)