Stock Corporation Law: Supervisory Board must Resolve on all Material Contractual Articles when Concluding Agreements with the Company's Management Board

When concluding agreements with its own management board, a stock corporation (Aktiengesellschaft – “AG”) is represented by its supervisory board (Section 112 of the German Stock Corporation Act (Aktiengesetz – “AktG”)). Whereas the contractual negotiations may be conducted by a single member of the supervisory board, the supervisory board as a whole must expressly consent to the conclusion and to all material articles of the agreement. This was the ruling of the Higher Regional Court of Munich (Oberlandesgericht – “OLG”) in its decision dated 5 March 2015.

The Decision

An AG had concluded a notarised purchase agreement with a member of its management board for the purchase of shares in a German limited liability company (Gesellschaft mit beschränkter Haftung – “GmbH”) held by the latter. Upon conclusion of the notarised purchase agreement, the AG was represented by two members of its supervisory board pursuant to a resolution of the supervisory board authorising those members "to sign the sale or transfer of H.’s shares in F. GmbH to A. AG ".

Subsequently, the AG wanted to withdraw from the agreement, arguing that it had not been effectively represented. In preliminary proceedings relating to an action for payment of the remainder of the purchase price brought by the former member of the management board, a different senate of the OLG Munich had dismissed the claim, stating that the purchase agreement had not been effectively concluded for lack of an appropriate resolution of the supervisory board (OLG of Munich, judgment of 19 December 2012, 7 U 1711/12). Furthermore, according to the senate, the adopted resolution was not explicit and could also be interpreted as a mere authorisation of the two members of the supervisory board to act as spokespersons (Erklärungsvertreter) of the company. This, however, was inadequate given that the extent of the company's obligations had not yet been established at the time of the granting of the power of attorney.

The AG subsequently brought a further action against the former member of the management board for repayment of the first instalment of the purchase price. The senate of the OLG Munich before which this action was brought assessed the case differently (judgment of 5 March 2015, 23 U 2384/14). It considered the resolution of the supervisory board to be a sufficient basis for the representation of the company within the meaning of Section 112 of the AktG, because the supervisory board had been provided with the draft of the agreement at the time of its resolution and no material amendments had been made to same before the conclusion of the notarised agreement. The senate interpreted the imprecisely drafted resolution of the supervisory board as referring to the purchase agreement itself, or at least its material articles and not merely as an authorisation of the two supervisory board members.

Comment

The senate of the OLG Munich ruling on this matter initially upheld the case law pursuant to which the supervisory board must resolve upon all material articles of an agreement concluded with a member of the management board. At the same time it allowed for an imprecise resolution to be interpreted on the basis of external circumstances. However, taking into consideration the judgment of the division of the OLG Munich ruling on the action for payment of the remainder of the purchase price, the possibility of taking such an interpretative approach cannot be relied upon, particularly taking into account that it may be difficult to subsequently establish the existence of certain external circumstances. The resolution of the supervisory board should therefore clearly express the supervisory board's consent to the conclusion of the agreement in question. In addition, a draft of the agreement should be appended to the minutes of the meeting relating to the resolution of the supervisory board. If the draft agreement contains open issues, the supervisory should at least make certain provisions in connection therewith and also make clear that the open issues do not relate to any material articles of the agreement.

Section 112 of the AktG not only applies to stock corporations but also in the case of the representation of a partnership limited by shares (Kommanditgesellschaft auf Aktien – “KGaA”) vis-à-vis its general partner (Komplementär) and a co-determined limited liability company (mitbestimmte Gesellschaft mit beschränkter Haftung (GmbH)) or a European company (Societas Europaea (SE)), provided that these have a supervisory board. The first clause of Section 39(1) of the German Cooperative Societies Act (Genossenschaftsgesetz – “GenG”) contains a corresponding provision for cooperative societies (Genossenschaft). In the case of a GmbH not subject to co-determination, the company’s articles of association may provide otherwise. However, in general, the (optional) supervisory board would also have jurisdiction in this case.