New Supreme Court ruling on the liability of supervisory board members

The responsibility of supervisory board members is a key aspect of corporate governance, especially when it comes to risky financial transactions. A recent decision by the Supreme Court (OGH) brings new clarity to the question of the extent to which supervisory board members are liable for losses from speculative financial instruments. The focus here is on the role of the supervisory board in the risk management of banks - a topic that has become even more relevant since the financial crisis of 2008.

Specifically, the decision 6 Ob 142/23k concerned losses from speculative financial transactions in the context of credit derivatives (credit default swaps, CDS). The plaintiff bank, an Austrian institution specializing in municipal financing, asserted claims for damages in the millions against former members of the supervisory board. At the heart of the matter was the allegation that these monitoring and control obligations risk and liquidity management, among other things, which would have led to significant losses from CDS positions that lost a lot of value during the Lehman bankruptcy in September 2008. The court of first instance dismissed the claim due to the lack of foreseeability of the market value losses, the court of appeal overturned this judgment due to the defendant's lack of increased diligence.

monitoring function of the Supervisory Board

With reference to Section 95 (1) AktG, the Supreme Court stated in its decision that the role and responsibility of the Supervisory Board is not to manage the company, but rather that the Supervisory Board is responsible for the management of the company. To monitor the legality, expediency and economic efficiency of the management has. Intensification of this monitoring is particularly necessary in times of crisis. In accordance with Section 81 in conjunction with Section 95 (1) AktG, the Executive Board is obliged to provide the Supervisory Board with relevant information. The Supervisory Board, in turn, may rely on the accuracy of the information, provided that the Plausibility check in this context, the Management Board generally has a duty to provide information; however, the Supervisory Board is entitled to conduct its own investigations, such as requesting reports within the meaning of Section 95 (2) AktG or other inspections in accordance with Section 95 (3) AktG, even without a specific reason.

Due diligence obligations of the Supervisory Board

§ Section 99 AktG imposes a duty of care and responsibility on Supervisory Board members that is equivalent to the duty of care of Management Board members pursuant to Section 84 AktG. According to the Supreme Court, the duty of care of a prudent Supervisory Board member is to be assumed in this respect, which can be demanded according to the particular situation of the individual case. In business and financial matters - in contrast to an average businessman - a higher level of experience and knowledge is assumed here and the corresponding ability, recognize difficult legal and economic contexts and assess their impact on society . The significance and weight of this increased standard of care is practically identical to that of Section 1299 ABGB. According to the Supreme Court, what an averagely diligent supervisory board can recognize from the information available to it remains a question of fact.

Liability of supervisory board members for loss-making transactions?

With regard to the liability of the Supervisory Board members in the proceedings in question, it was established that the extreme market distortions following the financial crisis were unforeseeable. The question of whether and to what extent the Supervisory Board is liable in such a constellation must therefore always be assessed from the perspective of the company. ex-ante perspective and on the basis of the exercise of the fair dealing on the basis of the special circumstances of the company to be assessed. In its decision, the Supreme Court states that there were no recognizable warning signals prior to September 2008 that would have required more intensive monitoring by the Supervisory Board. These only occurred when the damage could no longer be averted. Until then, the defendants were therefore entitled to rely on the reports of the Management Board and the auditors. The Supreme Court therefore rejected the allegation of failure to carry out (intensified) control and monitoring activities, upheld the appeals and (partially) overturned the decision of the Court of Appeal.

We advise both supervisory and management board members and managing directors on all liability law issues and also inform interested managers about the liability risks and risk reduction measures as part of a seminar on Director and officer liability that has been successfully established with WEKA-Verlag for many years, as well as in individually organized in-house seminars. Our law firm partner Dr. Maximilian Zirm will be happy to answer any questions you may have in this context. 

Emma Campbell | Paralegal

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