Dismissal, Resignation and Termination of the Board of Management of the AG in Germany
Removal and Retirement of Members of the Management Board from a Stock Corporation in Germany
The removal of a member of the management board from a stock corporation in Germany is usually far more complex than the removal of a managing director of a GmbH. This is due on the one hand to the fact that (a) german stock corporation law is characterized by a high degree of formality and (b) the office and contract of a member of the management board follow different rules in many respects. In addition, it is not uncommon for disputes between the management board member in question on the one hand and major shareholders, supervisory boards or other management board members on the other to be the starting point for the unilaterally or bilaterally desired separation - which further complicates matters.
From a legal point of view, the interplay and interactions between the levels of management board office and management board contract in Germany must be considered and managed when leaving the management board - dismissal or resignation on the one hand and termination or cancellation agreement on the other are two sides of the same coin.
Our expertise concerning Dismissal, Resignation and Termination of the Board of Management of the AG in Germany
Our highly qualified and specialized team of lawyers and specialists in german corporate law at our offices in Hamburg, Berlin, Munich, Frankfurt and Cologne will advise you on all issues relating to the resignation of the management board, including the termination of the management board contract by notice of termination or termination agreement in Germany. As one of only a few law firms, we have many years of experience in advising on german stock corporation law - both for listed stock corporations (MDAX, SDAX) and for non-listed AGs.
For a non-binding inquiry, please contact one of our contact persons directly by phone or e-mail or use the contact form at the bottom of this page.
Our consulting services in connection with the Resignation of Members of the Management Board in Germany
As a commercial law firm for german corporate law, employment law and tax law, we advise companies, supervisory boards, shareholders and management boards on all legal and tax issues relating to the dismissal of management board members, resignation from office and termination of management board contracts.
- Strategic advice in the run-up to the voluntary or forced resignation of the management board as well as negotiation of termination agreements between the AG and the management board
- Liability avoidance strategies in the event of resignation; enforcement of or defense against liability claims against management board members
- Preparation of resolutions of the supervisory board for the dismissal of the management board
- Out-of-court and in-court representation of stock corporations, supervisory boards and management boards in disputes concerning the dismissal and termination of management board contracts
- Measures in interim legal protection, e.g. interim injunctions in connection with dismissals, terminations
Removal of the Management Board by the Supervisory Board in Germany
Who can remove the management board in Germany? The supervisory board is solely responsible and competent for the dismissal of the management board. It appoints the management board; it dismisses it. In german practice, the term "revocation of appointment" is often used. This is due to the fact that the German Stock Corporation Act (AktG) states that "the supervisory board may revoke the appointment of a member of the management board [...]". It is important to know that the supervisory board in Germany, as a so-called body as a whole, must decide on the revocation of the appointment of the management board member; a decision is required in accordance with the provisions of the law, the statute and any rules of procedure. Practice in Germany shows that a number of mistakes are made at this point and when issuing the dismissal notice to the management board.
It follows from the foregoing that the general meeting in Germany cannot dismiss the management board. It can only withdraw its confidence in the management board and thus indirectly achieve or initiate a dismissal ("removal").
(Extraordinary) Dismissal of the Management Board for good cause
According to the german law, the supervisory board can only revoke the appointment of a member of the management board for good cause. This is referred to as extraordinary dismissal (without notice). For the member of a management board in Germany this means a certain protection. Unlike the managing director of a limited liability company (GmbH), the member of the management board cannot be dismissed at will.
For the stock corporation, this leads to a certain gagging. It is not possible to part with a board member who has become disagreeable without further ado. The background to the statutory provision is the idea that the management board should be able to manage and develop the company largely independently of the supervisory board and shareholders under its own responsibility - "in peace".
The german law defines in very general terms what constitutes good cause for the dismissal of a member of the management board. For example, a gross breach of duty, the inability to manage the company properly or a vote of no confidence by the annual general meeting shall constitute good cause for the dismissal of a member of the management board.
#1 Important reason for Dismissal in Germany - gross breach of duty
When a gross breach of duty or an inability to perform the duties of a management board member exists must always be determined on a case-by-case basis. The courts in Germany have assumed a gross breach of duty - justifying dismissal - in the following cases, for example:
- Urgent suspicion of a criminal act, including embezzlement to the detriment of the AG (also in a private capacity)
- Manipulation of balance sheets,
- Failure to set up an early risk detection system,
- Bribery, corruption
- Damage to the AG through off-duty conduct
- Failure to comply with approval reservations established by the supervisory board
#2 Important reason for Dismissal in Germany - Inability to manage the Business
The inability of a management board member in Germany to properly manage the company can also be an important reason for dismissal (without notice). Whether a board member is incapable or has become incapable is to be assessed on the basis of the specific circumstances. Examples from practice are rather rare; the following can be mentioned:
- Lack of expertise
- Personal unreliability in the sense of trade law
- Long-term illness
- Alcohol addiction/dependence, drug addiction/dependence
- The extent to which (contentious) disputes / disputes between board members lead to an inability to manage the company and thus possibly justify the dismissal of one of the board members is questionable. In corresponding situations, appropriate expertise is required, especially in tactical terms.
#3 Important reason for Dismissal in Germany - Withdrawal of Confidence by Annual General Meeting
In principle, the withdrawal of confidence by the annual general meeting in Germany also constitutes grounds for revocation of the appointment, provided that the withdrawal is not for obviously unobjective reasons. The withdrawal of confidence is factual in any case in Germany if there are completely different opinions between the annual general meeting and the management board member concerned about the future direction of the company. Objectivity exists even if the management board member cannot be subjectively reproached or is even objectively in the right. A resolution of the annual general meeting is required for the withdrawal of confidence and no reasons need be given in Germany. In the opinion of the courts, a refusal to grant discharge should not be equated with a withdrawal of confidence, so that this alone cannot be used as a basis for dismissing a member of the management board.
No ordinary Dismissal of the Management Board in Germany
The foregoing has shown that there is only one dismissal for cause, i.e. an extraordinary dismissal without notice. An ordinary dismissal in Germany, i.e. dismissal without cause, is inadmissible and invalid.
Resignation of the Management Board in Germany
In principle, it is also conceivable that the management board member in Germany may resign from office himself/herself by means of a unilateral declaration. There is no uniform model for the declaration of resignation in Germany. In principle, it is essential that the board member clearly expresses that (a) he is resigning from office and (b) at what point in time he will do so.
Sample: "I hereby resign as a member of the board of management, effective immediately."
Since resignation from office may also constitute a breach of the management board contract in Germany, the resignation from office and the timing thereof should be well considered. This is also because it is disputed whether such a unilateral declaration is permissible without good cause. In german practice, this question is usually of less relevance, since according to the indisputable view, the resignation from office is provisionally effective for reasons of legal certainty, and the company also usually has no interest in the activities of a board member who has resigned from office.
Resignation by mutual consent, Termination Agreement in Germany
The activity as a member of the management board in Germany can also be terminated by a mutual agreement between the stock corporation and the member of the management board. This does not require good cause. In this case, the AG is represented by the supervisory board, which must first decide by resolution.
At the same time, a comprehensive termination agreement ("termination agreement") in Germany is usually concluded in which all points requiring regulation regarding the termination of the management board contract are laid down. A large number of statutory regulations must be observed in this context. The supervisory board, which is responsible for the relevant termination agreements, in Germany is advised to exercise the greatest care at this point. This also applies not only to payments upon termination of the management board contract, which can easily constitute a breach of trust, but to all sets of regulations.
Listed stock corporations in Germany must observe the disclosure requirements under capital market law in connection with the termination of a management board position.
Coupling Clauses, Termination of Management Board Contract in Germany
If a mutually agreed separation is out of the question, an ordinary or extraordinary (without notice) termination of the management board contract must be brought about at the level of the management board employment contract in Germany. The (often invalid) linking clauses found in many management board employment contracts are intended to create an automatic link between the dismissal of the management board member and the termination of the management board contract: The declaration of dismissal should simultaneously constitute a declaration of termination.
Despite termination of the management board contract, it is worthwhile for both sides to consider a termination agreement. It gives both sides legal certainty and saves possible disputes in german public.