Austria: The practical significance of the Business Judgement Rule

 

The Business Judgement Rule as a Liability Privilege for Board Members

The Business Judgement Rule (BJR) regulated in Section 25 (1a) of the German Limited Liability Companies Act (GmbHG) and Section 84 (1a) of the German Stock Corporation Act (AktG) is understood to be a legally enshrined liability privilege in favour of board members and managing directors, which excludes a breach of duty by operation of law under certain conditions: In the event of a risk arising from a previously made entrepreneurial discretionary decision, there is no liability for damages incurred. The BJR principles are also to be applied in favour of supervisory board members, taking into account their part-time monitoring function.

In addition to a liability-limiting task for entrepreneurial action, the Business Judgement Rule essentially has the function of a rule on the burden of proof. The principle applies that board members of corporations are not liable for performance. If GmbH managing directors act in accordance with the BJR, then it is presumed that their actions were proper and that they observed the discretion granted by law in their business decisions („business judgment“). If, for example, the requirements of Section 25 (1a) GmbHG were fulfilled by a GmbH managing director, the company as the plaintiff must refute this presumption of proper conduct.

Requirements for the application of the Business Judgement Rule

The prerequisites for the diligent exercise of entrepreneurial discretion are that

a comprehensible business decision has been made;
the managing director complies with statutory and articles of association provisions as well as resolutions of the general meeting or any supervisory board or advisory board;
the managing director acts impartially – i.e. free of self-interests, other special interests and extraneous influences;
the decision is based on information appropriate to the significance of the measure;
the decision, at the time it is taken, is manifestly suitable, in the opinion of the director, to serve the best interests of the company;
the decision does not involve disproportionate risks;
the managing director is acting in good faith with regard to the above-mentioned requirements.

The application of the BJR is therefore in principle linked to all of the above conditions; liability towards the company is „in any case“ out of the question.

Allocation of the burden of proof and legal consequences in the event of non-compliance

In this respect, there is talk of a „safe harbour“, which exempts a managing director from liability (and also from criminal liability). Converse conclusions are inadmissible because of the wording „in any case“. This means that there is no need for full judicial review of the decision if the statutory criteria are met; rather, only in the case of gross wrong decisions does a complaint arise and thus to a judgment of illegality.

The absence of any of the above requirements leads to the omission of the invocation of the Business Judgement Rule. The distribution of the burden of proof plays a decisive role: The Austrian concept assumes that the plaintiff (the company) has to prove damage and causality, while the managing director must refute the breach of duty of his actions.

 

For further information, please contact:

Christian Fritz, Business Mediator

Zumtobel + Kronberger, Salzburg

e: office@eulaw.at

 

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