GERMANY Law and Practice Contributed by: Eva Nase and Kay-Uwe Neumann, POELLATH
The appointment and dismissal of the managing directors of a GmbH is, in principle, the responsibility of the shareholders’ meeting. The term of office may be indefinite. A person who has been convicted of certain criminal offences (eg, fraud) may not be a member of a man - agement board nor a managing director. 3.5 Independence of Directors Management Board The members of the management board of an AG are subject to a duty of loyalty to the company, must observe the best interests of the company, and are bound by a non-compete obligation for the duration of office. They must disclose conflicts of interest to the supervisory board without undue delay. The DCGK also makes statements to that effect. In certain situa - tions, members of the management board should thus either abstain from casting votes or not even partici - pate in the meeting or the relevant topic. Supervisory Board The members of the supervisory board of an AG and a two-tier system SE and of the administrative board of a single-tier system SE are also bound by a duty of loyalty, but there are no mandatory statutory provi - sions that require and define independence. However, a few restrictions aimed at independence prohibit an individual from becoming a member of the supervisory or administrative board – eg, where the individual is part of the management of a subsidiary of the compa - ny. Nevertheless, the DCGK requires a certain degree of independence to avoid conflicts of interest. In this respect, the supervisory board shall determine an appropriate number of independent members. The DCGK gives indicators for determining the independ - ence of members of the supervisory board. These include personal or business relationships with the company, the management board, controlling share - holders and major competitors that may cause a sub - stantial or not merely temporary conflict of interest. 3.6 Legal Duties of Directors/Officers Members of management bodies must conduct the company’s affairs with the due care of a prudent and diligent businessperson, in particular in accordance
with the applicable laws and the articles of association (duty of legality, including the increasingly important duty to establish and maintain an effective compli - ance management system). In the case of entrepre - neurial decisions, the so-called business judgement rule applies in order to eliminate hindsight bias when legally evaluating the management bodies’ past con - duct. This means that members of the management board may be exempt from liability if they had reason - ably assumed that they were acting on the basis of adequate information and in the best interests of the company. The same applies to the members of the supervisory and administrative board. However, their differing tasks and roles in the corporate governance of the respective company lead to a different emphasis of duties. 3.7 Responsibility/Accountability of Directors In principle, members of management and supervis - ing bodies owe their duties primarily to the company; they always have to act in the best interests of the company and its group. However, the interests of the company include, to a certain extent, the interests of all stakeholders (such as creditors and employees) of the company (the German “stakeholder model” in contrast to the Anglo-Saxon “shareholder model”). 3.8 Breach of Directors’ Duties In an AG and SE (with a few exceptions in special statutory rules – eg, in the event of an insolvency or in the context of wilful misconduct), creditors and share - holders cannot enforce a breach of duties of members of management and supervising bodies. The members of the bodies are rather jointly and severally liable in the internal relationship towards the company due to their joint responsibility. Thus, individual members of a management and supervising body may not absolve themselves from liability because a certain task or responsibility was delegated to a different member internally. Furthermore, such a breach may lead to a dismissal and, with respect to the management members, a ter - mination of their service contract.
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