Information Rights and Duties of the Management Board and Supervisory Board in Germany
Dispute over Reporting Duties of the Management Board in the German Stock Corporation (AG)
By german law, the supervisory board is appointed to supervise the management board, specifically to supervise the management of the company by the management board. However, the supervisory board can only monitor the management board if it has sufficient information concerning the management board. In german practice, (excessive) requests for information from the supervisory board often lead to disputes between the members of the management board and the supervisory board: The management board does not want to be "ruled over". The supervisory board does not want to be just a "nodding uncle" or even strategically "prepare" a liability action or dismissal.
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What are the statutory Reporting Duties of the Management Board in Germany?
Art. 90 of the German Stock Corporation Act (AktG) is the central provision governing the statutory reporting duties of the management board towards the supervisory board. The statutory regulation makes a clear distinction between so-called regular reporting pursuant to Section 90 para. 1 and 2 and so-called special reporting pursuant to Section 90 para. 3 AktG.
While regular reporting is intended to ensure that the supervisory board in Germany receives regular information, special reporting serves to inform the supervisory board in special cases.
Regular reporting by the Executive Board - Art. 90 para. 1 and 2 of the German Stock Corporation Act
"The management board shall report to the supervisory board on
1. the intended business policy and other fundamental issues of corporate planning (in particular financial, investment and personnel planning), whereby deviations of the actual development from previously reported targets shall be addressed, stating the reasons;
2. the profitability of the company, in particular the profitability of equity capital;
3. the course of business, in particular sales, and the situation of the company;
4. transactions which may be of significant importance for the profitability or liquidity of the company.
[...] In addition, reports shall be submitted to the chairman of the supervisory board on other important occasions; an important occasion shall also be deemed to be a business transaction at an affiliated company of which the management board becomes aware and which may have a significant influence on the situation of the company.
(2) The reports pursuant to para. 1 sentence 1 numbers 1 to 4 shall be made as follows:
1. the reports pursuant to No. 1 at least once a year, unless changes in the situation or new issues require immediate reporting;
2. the reports pursuant to No. 2 at the meeting of the supervisory board at which the annual financial statements are discussed;
3. the reports pursuant to No. 3 on a regular basis, at least quarterly;
4. the reports pursuant to No. 4 as far as possible in sufficient time for the supervisory board to have the opportunity to comment on them before the transactions are carried out."
Special reporting by the Board of Management - Art. 90 para. 3 of the German Stock Corporation Act
"(3) The supervisory board may at any time request a report from the management board on matters concerning the company, on its legal and business relations with affiliated companies and on business transactions at such companies which may have a significant influence on the situation of the company. An individual member may also request a report, but only to the supervisory board."
Enforcement of Information Duties - Penalty, Action against the Management Board, Dismissal of the Management Board
If the management board in Germany refuses to provide the information required by law for the benefit of the supervisory board or if the management board only insufficiently fulfills its duties to provide information, the registration court may, at the instigation of the supervisory board, impose a penalty payment on the members of the management board.
Irrespective of the aforementioned penalty proceedings, the supervisory board may also enforce its information rights towards the management board in legal action.
Finally, an unlawful refusal to provide information or insufficient provision of information can also provide an extraordinary reason for dismissing the management board in Gernany.
Monitoring in the Corporate Crisis - Staged Monitoring in Germany
If the economic situation of the german stock corporation deteriorates, the intensity of monitoring required of the supervisory board also increases. In other words, depending on the situation, the supervisory board must increase its monitoring in terms of content and time.
In the case of a "normal" course of business, the supervisory board can carry out its monitoring on the basis of regular statutory reporting. If the economic situation deteriorates, the supervisory board will have to reduce the intervals between the regular reports. In a corporate crisis, the supervisory board in Germany may have to be informed on a weekly or even daily basis - otherwise it will be jointly responsible and therefore liable.
Practical advice: Information order of the Supervisory Board
In german practice, it is advisable to make provisions for a set of information rules that regulate the specific reporting duties of the management board. These can be part of the rules of procedure of the management board or can also be a separate internal regulation alongside the rules of procedure.
It is important that the supervisory board in Germany does not forget the basic legal order of german stock corporation law - the management board manages the stock corporation and not the supervisory board. An information regulation that exceeds the statutory standard reporting always exposes itself to the accusation that the supervisory board is inadmissibly interfering with the management competence of the management board.