I. Stock Corporation Law – Duties of the management board in the area of compliance

By Dr. Johannes Grooterhorst

Liability of the CFO of Siemens AG

In its ruling of December 10, 2013 the Landgericht Munich I has decided that members of the management board of a public limited company are liable for the establishment, operability and efficiency of a compliance system in a large company. The case ruled on relates to Siemens AG and, personally, to the former CFO.

For the affected board members – who had mostly left the board in the meantime - the problem of a highly – negative – publicity of their case arises in this context and case reviews are partly published with their real names. The question whether the persons affected can take legal action against this, has to be pursued separately due to such cases.

Bribe payments by violating the OECD convention of December 17, 1997

The breaches of duty of the defendant CFO discussed by the Landgericht Munich dated back to the early 2000s. At that time the OECD Convention regulating the fight against corruption as of December 17, 1997 had already been in force: Cross-border bribe payments constituted a violation of law. According to the Landgericht Munich each member of the management board has to ensure that the company is organised and controlled in such a manner that no violations of law take place. Decisive for the scope in the individual case are the type, size and organisation of the company, the regulations to be observed, its geographical presence as well as suspected cases of the past. In the specific case Siemens invoked the fact that the defendant had established a deficient compliance system which he had also controlled insufficiently. The establishment of such a system for the use of corruption payments had to comply with strict standards of due care.

The Landgericht Munich blamed the defendant of the fact that particularly the review of the efficiency of the existing compliance system had been necessary because the management board would have been informed about suspected cases of corruption payments at regular intervals. That had been lacking for the following reasons:

  • The defendant and the management board as a whole had not taken care of a clear regulation as to who had been in charge of the overall responsibility for compliance at full board level.
  • Furthermore, one would have had to endeavour that the persons commissioned for controlling the compliance benchmarks had been provided with sufficient authority to draw consequences from violations.
  • The board member in charge of compliance had to be granted clear rights to issue instructions to the business unit managers. Particularly in the absence of a line of reporting with competences to be derived thereof for disciplinary measures, the management board as well as the defendant should have intervened.
  • The duty to establish a functioning compliance system as well as the monitoring of its efficiency affected the full board of management and therefore, in that specific case, the defendant.
  • The defendant could not invoke the fact that the full management board had not followed his arguments. He could have brought forward counter-arguments and he should have called in the supervisory board, if necessary.
  • Since slight negligence sufficed for the breach of duties of the management board, some fault was attributed to the defendant because of the objective breach of the aforementioned duties.

Practical considerations: Questions under procedural law

As far as court proceedings were concerned it was remarkable that the defendant in persona (not as member of the management board of Siemens AG!) had to take the responsibility concerning the knowledge about the Siemens organisation. It represented his own perceptions to which the defendant board member had to take a stand. Otherwise the proposal of the applicant company was deemed granted (§ 138 Sec. 4 Code of Civil Procedure (ZPO). In that case it had to be examined whether these principles could have also applied if the board member had been sued as a private person. Apart from that, the Landgericht of the defendant referred to his entitlement to information against the AG.

Assessment ex post?

The defendant had tried to exonerate himself by means of the fact that at the time of the violation the term "compliance" had not yet been established. The Landgericht did not attribute any significance to that circumstance. One has to ask whether the perspective could be consistent with the due ex-ante perspective of the court.

Or ex ante?

Actually the Landgericht Düsseldorf obviously decided in the opposite direction in the Apo- Bank ruling of April 24, 2014 (FAZ of April 26, 2014). The defendant members of the board management had weighed up the decision-making basics of the investments with due care. The massive decline in prices, which occurred later, regarding assets accredited with the highest rating until then was not to be expected, even in the event of the most diligent review.

All depends on the individual case!

II. Private limited companies law - § 40 Sec. 2 Private Limited Companies Act (GmbHG) – Effectiveness of submitting a list of shareholders at the commercial register by a foreign notary in charge of the notarisation

By Jörg Looman

In its ruling of December 17, 2013 (Az.: II ZB 6/13) the Federal Supreme Court (BGH) has ruled that the submission of a list of shareholders by a foreign notary pursuant to § 40 Sec. 2 Private Limited Companies Act (GmbHG) is actually valid if the notarisation which took place abroad is an equivalent to the notarisation attested by a German notary.

Notarisation of a change of shareholders at a German private limited company (GmbH) by a notary in Basel/Swizerland

A notary located in Basel/Switzerland had notarised a change of shareholders of a German private limited company (GmbH) and had submitted the updated list of shareholders at the registry court. The registry court refused to enter the list of shareholders in the commercial register, because the submission made by a foreign notary did not comply with the requirements of § 40 Sec. 2 Private Limited Companies Act (GmbHG). While the Oberlandesgericht Munich has confirmed the refusal, the Federal Supreme Court (BGH) has annulled that decision and obliged the registry court to include the list of shareholders.

Effects of the German Act to Modernise the Law on Private Limited Companies and Combat Abuses (MoMiG)

When any changes are made to the persons of the shareholders the managing directors have to submit an updated list of shareholders pursuant to § 40 Sec. 1 Private Limited Companies Act (GmbHG). The notary in charge of the notarisation of a fair change hat to submit this list at the registry court according to § 40 Sec. 2 Private Limited Companies Act (GmbHG). Prior to the coming into effect of the German Act to Modernise the Law on Private Limited Companies and Combat Abuses (MoMiG) it was approved that even foreign notaries were able to notarising and submitting the list of shareholders if their activity was comparable to that of a German notary. Subsequent to the law reform various – and in part contradictory – court rulings resulted in a substantial uncertainty as to whether a notarisation effected abroad could still be made with legal effect.

Equivalence of the notarisation

The Federal Supreme Court (BGH) has confirmed the old legal position by way of its current ruling: A notarisation abroad is valid if it is deemed an equivalent to a notarisation attested by a German notary. This is indeed the case with the notary registered in Basel/Switzerland. Whether this applies to notaries in all cantons in Switzerland, and to which other foreign notaries, has not yet been finally decided.

Practical considerations

The ruling of the Federal Supreme Court (BGH) has ensured legal certainty: In the event of foreign notarisations it has, to be ensured that this notarisation is deemed an equivalent to the notarisation of a German notary. As a matter of fact, in case of an ineffective notarisation or submission of a shareholder list the new shareholder is - pursuant to § 16 Sec. 1 Private Limited Companies Act (GmbHG) – not deemed a shareholder regarding the company and he is, therefore, also not able to exercise any shareholder rights.

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