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Europe > Austria > Corporate > Company Director Disqualification > Overview

Overview: Corporate, Company Director Disqualification

1. Managing Director in General

The Austrian GmbH is a legal entity (juristische Person) and the most common corporation in Austria. While having full legal capacity (Rechtsfähigkeit), it lacks capacity to factually act on its own (Handlungsfähigkeit) and needs to be represented by one or more managing directors. The managing director is authorised to represent the GmbH and act on its behalf vis-à-vis third parties and in legal proceedings. He is responsible for the day-to-day management. The managing director under Austrian law mandatorily needs to be a natural person.

2. Appointment

2.1. Qualifications

To meet the legal requirements, the managing director needs to be a natural person capable and competent to act. It is prohibited to install a legal entity (e.g. another GmbH) as managing director. Further, the managing director must not be a member of the supervisory board, if such board is installed. Apart from the mandatory requirements of appointing a physical person who is capable of acting, the GmbH is basically free in choosing a managing director. Due to fiduciary duties, however, the shareholders shall not appoint a completely unqualified person as managing director. Further, the articles of association may determine specific requirements for the managing directors.

2.2. Appointment by decision

The shareholders of the GmbH are the competent body to appoint and to revoke the appointment of a managing director. Unless otherwise stated in the articles of association, the members resolve by simple majority. The appointment may be decided in a general meeting or by written resolution.

2.3. Appointment by articles of association

A shareholder may be appointed as managing director by the articles of association. His position as managing director is then granted (only) for as long as he is a shareholder of the GmbH. If such managing director ceases to be a shareholder, his appointment expires automatically.
A shareholder may be appointed as managing director by the articles of association even after the GmbH’s registration with the Register of Companies (Firmenbuch); such procedure requires an amendment of the articles of association with a qualified majority of 75%.

2.4. When will the appointment be effective?

The appointment becomes effective once the managing director accepts it. The managing director may be appointed for a definite or indefinite period of time. In any case, he may be revoked any time. The registration of the managing director in the Register of Companies has only declaratory effect.

2.5. Will the appointment be registered?

Yes; the managing director has to file for registration of his appointment in the Register of Companies without undue delay. The resolution of the shareholders needs to be shown to the court in notarised form and the newly appointed manager needs to also file a specimen signature (Musterzeichnung). The Register of Companies is kept by the Commercial Court (Handelsgericht) competent at the seat of the company.


3. Duties of the Managing Director

3.1. Representation

The managing director is authorised to represent the company vis-à-vis third parties and in legal proceedings. The power of representation vis-à-vis third parties is absolute. The director is obliged to comply with internal restrictions, if any, but if he acts contradictory to internal restrictions, the legal acts are still valid between the GmbH and the third party. The managing director, however, will become liable towards the GmbH.

3.2. Management

The managing director is not only responsible for acting on behalf of the company, but also for accomplishing the business purpose by managing the GmbH. He has to duly conduct business and to be loyal to the GmbH. Unless agreed otherwise, the managing director is subject to a non-competition clause by law.
If more than one managing director is appointed, they are entitled to collectively represent the company, unless otherwise specified in the articles of association. The articles may e.g. provide for that the shareholders decide in the appointment resolution whether a director will be entitled to solely or collectively represent the company.

It is the managing director’s duty to supervise all business activities of the GmbH, even if under internal by-laws he is not responsible for specific business areas.

Legal duties comprise (i) accounting and preparation of the financial statement, (ii) appointment of annual auditor (under certain criteria), (iii) disclose the annual financial statement at the Register of Companies, (iv) convening the shareholders meeting, (v) filings with the Register of Companies, (vi) report to the supervisory board, if any, (vii) compliance with all stated requirements of approval, (viii) obligation to file for bankruptcy, (ix) protection of share capital against unlawful interferences.


4. Miscellaneous Termination Events

4.1. Temporary appointment

Shareholders may decide to appoint a managing director for a certain period of time. Further, if a shareholder is appointed by the articles of association, the appointment automatically terminates once he ceases to be a shareholder of the GmbH.

4.2. Loss of legal capacity

The loss of the managing director’s legal capacity causes the termination of his appointment.


4.3. Temporary dismissal

In cases where only a suspicion of severe wrongdoing arises, a temporary dismissal of the managing director may be sufficient. The dismissal only affects the internal relationship, the external representation powers stays unaffected. It should therefore be used as an interim measure only.


5. Revocation

5.1. Competence

It lies within the competence of the shareholders to revoke the appointment of a managing director. This competence may not be transferred to any other corporate body.

5.2. How can the appointment be revoked?

Analogous the appointment, the shareholders need to pass a resolution; no specific form is required. If not otherwise stated in the articles of association, a simple majority is sufficient. The managing director’s appointment terminates upon the shareholders resolution and the director’s notification. It is not required to inform the managing director about the vote in advance. The revocation of a shareholder as managing director based on the abuse of rights or unobjective reasons may be contested by the overruled shareholders.
Note: A shareholder as managing director may also vote on (i.e. also against) his own revocation. If he does so and successfully prevents his revocation, the overruled shareholders may proceed and seek court-ordered revocation.


5.3. Revocation for good cause

The articles of association may provide for restrictions fort the revocation of shareholders as managing directors so that they may only be revoked with good cause. The articles of association may specify and define the good cause and may even include rather marginal causes. Overall, a gross breach of duty and the inability to manage the GmbH properly are considered as good cause. Note: waiting for a lengthy period of time may be considered as a waiver to enforce the good cause.

Further, courts hold that there has been good cause in cases of (i) chronic illness and age-related impairment of work performance, (ii) two or more managing directors are in a status of ongoing controversy so that there seems to be no prospective for future operation, (iii) reasonable suspicion of a criminal offence, (iv) failure to timely file for bankruptcy, (v) lack of transparency towards the other bodies of the GmbH, (vi) breach of directives, internal restrictions, non-competition clause, information requirements, fiduciary duties.

5.4. Judicial (court-ordered) revocation

If the resolution to revoke a shareholder as managing director does not meet the required majority in the general meeting, a judicial revocation may be eligible. The possibility for such court-ordered revocation is mandatory; it may not be validly waived by the articles of association.

The judicial revocation is subject to the jurisdiction of commercial courts. It is for the court to determine whether there is a good cause or not. The action is brought by overruled shareholders against the shareholder as managing director, not against the GmbH. If the court passes a final judgement, the shareholder is deemed to be directly dismissed as managing director.

This resembles the disqualification order under the UK Company Directors Disqualification Act against a person, the court may provide that the managing director may no longer be the director of the company, act as receiver of the company’s property or be concerned or take part in the promotion, formation or management of a company.


6. Resignation


6.1. How to resign as managing director?

The managing director may himself terminate his appointment by resigning. The law provides for a grace period of 14 days between receipt of the resignation letter by all shareholders and filing with the companies register. After this period and by showing delivery of the resignation letter to all shareholders, the managing director may file his resignation with the Register of Companies.

When there is good cause, however, the resignation becomes immediately effective (i.e. without grace period) upon receipt of the resignation letter by the shareholders.

6.2. Good cause

Unlike in the UK, where the Company Directors Disqualification Act sets out the procedures for company directors to be disqualified in certain cases of misconduct, Austrian law does not define the term “good cause”. Under applicable case law and according to legal scholars “good cause” includes cases where (i) the managing director is prevented from carrying out his duties; (ii) he cannot continue to manage the GmbH without severe damage to health or offending common decency and law; (iii) the managing director and members disagree about how to conduct business or how to reorganizes the company or (iv) cases of significant defamation or assault.


7. Brief comparison to the UK Company Directors Disqualification Act

7.1. For comparison, under the UK Company Directors Disqualification Act a court may issue a disqualification order:

(i) if the managing director is convicted of an indictable offence in connection with the promotion, formation, management, liquidation or striking off of a company with the receivership of a company’s property or with his being an administrative receiver of a company;
(ii) if he has been persistently in default in relation to provisions of the companies legislation requiring any return, account or other document to be filed with, delivered or sent, or notice of any matter to be given, to the registrar of companies;
(iii) if the company gets wind up and the managing director has been guilty of an offence for which he is liable or while an officer or liquidator of the company receiver of the company’s property or administrative receiver of the company, of any fraud in relation to the company or of any breach of his duty as such officer, liquidator, receiver or administrative receiver;
(iv) if the managing director is convicted in consequence of a contravention of, or failure to comply with, any provision of the companies legislation requiring a return, account or other document to be filed with, delivered or sent, or notice of any matter to be given, to the registrar of companies.


7.2. Mandatory disqualification

The court shall issue a disqualification order against the managing director in any case where (i) it is convinced that he is or has been a director of a company which has at any time become insolvent, and (ii) that his conduct as a director of that company makes him unfit to be concerned in the management of a company.

7.3. Outlook

We shall see whether the Austrian legislator will eventually provide for more detailed criteria similar to the UK Company Directors Disqualification Act or whether this area will remain one of the few where UK law is based on statutory legal provisions whereas Austrian law is rather case law based.

Last Update: 2013-Sep-10 Dr. Wolfgang T. Graf, LLM - Graf Patsch Taucher Rechtsanwaelte GmbH
The contents of this page do not constitute legal advice or create an attorney- client relationship with the contributor. Do not apply anything you read here without contacting a professional.
Author: Dr. Wolfgang T. Graf, LLM
Law Firm: Graf Patsch Taucher Rechtsanwaelte GmbH
Address: Graf Patsch Taucher Rechtsanwaelte GmbH
Am Schwarzenbergplatz, Brucknerstrasse 2/4,
Wien
1040
Austria
Telephone: +431 5354820
Email: office@gpra.at
Website: www.gpra.at/en/graf-patsch-taucher/