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Extended Approval Requirement of the Supervisory Board for Consulting Agreements

The Federal Court of Justice (Bundesgerichtshof, "BGH") has ruled that a consultancy agreement concluded between a German stock corporation (Aktiengesellschaft, "AG") and a company, where a member of the AG's supervisory board is not a shareholder but a legal representative, also requires the approval of the supervisory board.

Facts

The ruling of the BGH of June 29, 2021 (II ZR 75/20) is based on the following facts: The chairman of the supervisory board of the D. AG was also chairman of the executive board of the I. AG, a consulting company. D. AG concluded a consultancy agreement with the I. AG without submitting it to the supervisory board first. In return for the consulting services subsequently provided by I. AG, D. AG paid a fee of around 61,000 Euros. When this became known to the subsequent chairman of the supervisory board of D. AG, D. AG as plaintiff demanded repayment of the remuneration from the former chairman of the supervisory board as defendant. The Regional Court of Essen initially dismissed the claim, before the Higher Regional Court of Hamm upheld most of it. The former supervisory board chairman appealed against this decision to the Federal Court of Justice.

Reasons for the decision

The appeal was unsuccessful. The BGH was also of the opinion that the defendant was obliged to repay the remuneration of around 61,000 Euros and therefore dismissed the appeal. The claim for repayment of the compensation paid by D. AG to its former supervisory board chairman was based on Section 114 (2) Sentence 1 of the German Stock Corporation Act (AktG), which was also applicable (by analogy) in the present case. It is irrelevant that Section 114 AktG, according to its wording, only covers consultancy agreements which the supervisory board member concludes personally with the stock corporation. Corresponding application is required above all by the protective purpose of Sections 113, 114 AktG, according to which the stock corporation has to be protected against concealed supervisory board remuneration and the endangerment of the independence of the supervisory board member through too close advisory relationships. The latter was precisely the case here. Independence was at risk here because conflicts of interest could already arise from the defendant's position as chairman of the supervisory board of D. AG and at the same time as legal representative of I. AG. Moreover, this applied irrespective of any shareholding in the company and/or the agreement of performance-related remuneration, since the defendant was in any case affected by the economic success or failure of the company in his professional position.

Notes for practice

With its current decision, the Federal Court of Justice once again confirms the trend towards a broad scope of application of Section 114 AktG. It is true that the wording of the provision only covers contracts between the AG and its supervisory board members themselves. However, even before the BGH decision it was recognized that section 114 AktG applies beyond its wording: (a) if the contractual partner is a related party of the supervisory board member within the meaning of section 115 (2) AktG, (b) if the supervisory board member is both the legal representative and sole shareholder of the contractual partner (BGH, ruling of July 3, 2006 - II ZR 151/04) or (c) if the supervisory board member, although not the sole shareholder, nevertheless holds an interest in the contractual partner and receives more than very minor benefits from the latter (BGH, judgment of July 10, 2012 - II ZR 48/11). By now dispensing entirely with the requirement of a shareholding in the company concerned and allowing it to suffice that the supervisory board member is merely the legal representative of the contractual partner, the BGH extends the scope of application of Section 114 AktG a little further. It justifies this primarily on the basis of the protective purpose of Sections 113, 114 AktG, according to which the stock corporation is to be protected against concealed supervisory board remuneration and the endangerment of the independence of the supervisory board member through too close advisory relationships. More than ever, therefore, caution is required when concluding consulting agreements. Whenever a supervisory board member has a special relationship with a contractual partner of the AG, the supervisory board's duty of approval should be checked in order to avoid any repayment obligations. If you want to be on the safe side, you should always obtain the approval of the supervisory board in case of doubt.

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