Special Audit, Special Auditor and Liability in german Stock Corporation Law
Enforcement of Damages against the Executive Board, Supervisory Board by the Annual General Meeting and Shareholders in Germany
Possible breaches of duty by the executive board of an german AG must be clarified and, if necessary, asserted by the supervisory board in accordance with the German Stock Corporation Act (AktG). Possible breaches of duty by the supervisory board of an AG, on the other hand, must be clarified and, if necessary, asserted by the management board in Germany. But what happens if neither the supervisory board nor the management board fail to fulfill their respective duties and do not assert any liability? For this purpose, the AktG provides for the so-called special audit under stock corporation law (Art. 142 AktG) for the shareholders' meeting and minority shareholders.
Legal Expertise in the Area of Special Audits
Our highly qualified and specialized team of attorneys and specialists in german corporate law at our offices in Hamburg, Berlin, Munich, Frankfurt and Cologne will advise you on all issues relating to special audits under german stock corporation law, quickly and competently. Members of our team are also academically involved in the subject of lawsuit admissions procedures, so that we have special know-how in this area.
The range of advice provided by our stock corporation lawyers can be described as follows:
- Strategic advice on the preparation of / defense against a motion for a special audit at the shareholders' meeting
- Support at shareholders' meetings at which special audit motions are on the agenda
- Legal action against resolutions to appoint a special auditor
- Strategic advice on filing / defending an application for a special audit by a minority of shareholders in court
- Support of special audits on the part of the stock corporation
- Conducting special audits as appointed special auditor
Unlike the special audit under german stock corporation law discussed here, so-called internal investigations and informal special audits do not follow the regulations of the AktG. While Articles 142-149 AktG are often applied "voluntarily" to the latter, internal investigations follow their own rules.
For a non-binding mandate inquiry, please contact one of our contacts directly by telephone or e-mail or use the contact form at the bottom of this page.
Duty of Management Board and Supervisory Board to clarify and assert Claims for Damages
The supervisory board of the german AG is responsible for monitoring the executive board. If there is reason to believe that the executive board has violated its duties, the members of the supervisory board must investigate the relevant events themselves or with the help of appropriate experts (lawyers, tax advisors, auditors) and assert any claims out of court or by way of legal action against the executive board members concerned.
The same applies to suspected breaches of duty by the supervisory board in Germany. Here, the management board is called upon to investigate and assert any claims for damages - also in order to avoid becoming liable for damages itself.
If the executive board and supervisory board do not fulfill their aforementioned duties, the shareholders' meeting can itself appoint an external expert, the so-called special auditor, who will investigate any suspicion of irregularities in the management of the german stock corporation independently of the executive board and supervisory board and report to the shareholders on the results of an audit.
Annual General Meeting, Resolution on the Appointment of a Special Auditor in Germany
Pursuant to Art. 142 AktG, the shareholders' meeting in Germany may resolve by a simple majority to have certain transactions in the management of the company investigated by a special auditor. This initially covers all transactions within the area of responsibility of the executive board. Whether the management board itself has acted or an employee or even an external third party is irrelevant. All transactions within the area of responsibility of the supervisory board and relations with group companies may also be investigated.
The resolution to appoint the independent special auditor must be duly announced on the agenda of the annual general meeting in the same way as any other item. The only exception is if the transactions to be audited can be factually assigned to another agenda item. This is usually the case if the matters fall within the period in respect of which the actions of the executive board and supervisory board are to be approved by the annual general meeting in Germany.
Shareholders, own Application to the german Court for the Appointment of a Special Auditor
If the shareholders' meeting in Germany rejects the appointment of a special auditor, individual shareholders can apply to the court for the appointment of an auditor. The requirements for this are:
- Application by shareholders who can account for one hundredth of the share capital or the proportionate amount of 100,000 EUR
- Share ownership of the applicants for at least 3 months
- Suspicion of a serious breach of duty by the executive and supervisory boards
In german practice, the suspicion of a serious breach of duty ("dishonesty or gross violations") in particular is no small hurdle for the shareholders submitting the application. This also applies because in individual cases it is usually unclear to what extent the shareholders have to present and prove the suspicion.
In addition, the german courts examine whether there are "overriding reasons in the best interests of the Company" for conducting the special audit (similar to the procedure for admitting a complaint under Art. 148 AktG).
Special Auditor, Rights and Duties, Special Audit Report
The special auditor appointed by the shareholders' meeting or by the german court has extensive rights of inspection and information, in the implementation of which the company must actively support the auditor.
If no support is provided, the auditor may also enforce his rights to inspection and information in court. Members of the executive board may even be subject to penalty payments if they fail to cooperate with the special auditor.
The special auditor himself is subject to similar duties as the auditor of the financial statements in Germany. They are therefore obliged to conduct a conscientious, impartial, confidential and independent investigation of the transactions covered by the audit, i.e. without being subject to instructions from the management board, supervisory board or shareholders.
The audit is concluded with a written special audit report. In this report, the shareholders must be informed of the findings in plain language. In order to avoid serious disadvantages for the stock corporation, the executive board may demand that individual passages of the report be redacted (e.g. business secrets, know-how). For this purpose, the management board in Germany must file a corresponding application with the court, which will decide on deletion after thorough consideration.
Costs of the Special Audit in Germany
The costs of the special audit, in particular the remuneration of the special auditor, are to be borne by the german Company. Only if the shareholders making the application have obtained the appointment of the special auditor by intentionally or grossly negligently making an incorrect statement shall they be required to reimburse the costs to the AG.
Special Representative, Admission of Action Proceedings
If the special audit has uncovered breaches of duty on the part of the executive board and/or the supervisory board, the shareholders' meeting may resolve - independently of the executive board and the supervisory board - to assert any claims for damages with a simple majority (Art. 147 AktG).
The general shareholders' meeting is free to appoint a so-called special representative (Art. 147 AktG) who will assert the claims on behalf of the AG - again independently of the executive board and supervisory board - against the members of the executive bodies concerned. The special representative also has rights of inspection and information in Germany.
In addition, shareholders may apply to the court under the so-called action admissibility procedure for the right to assert the AG's claims for damages in their own name on behalf of the AG.