Business judgement rule is regulated in Section 51(1) of the BCA and is a manifestation of the principle that a member of an elected body is not responsible for the result of his or her actions, but for the proper exercise of those actions, even if such proper exercise of his or her office results in harm. According to § 51 (1) BCA A person shall be deemed to act with due care and the necessary knowledge where, in business-related decisions, he or she could in good faith and reasonably assume to be acting on an informed basis and in justifiable interest of the business corporation. The foregoing shall not apply in cases where such decision-making was carried out without the necessary loyalty.

Business Judgment Rule is the application of the duty of due care to that part of the elected members’ responsibilities which consists of decision-making, namely only business decision-making ¹ Therefore, if the members of the elected bodies decide on anything else, the rule does not apply. . Business decision-making is decision-making on matters relating to the company’s business, i.e. business management and matters falling within the area of strategic decision-making. Usually, it will be a decision of the company’s statutory body. However, the Supervisory Board of a joint-stock company is also affected in cases where it decides, pursuant to Section 374 of the BCA, on claims for damages against members of the Management Board and represents the company in proceedings against them. These decisions also fall within the area of business decision-making.

Particularly in the case of single-member bodies, it may be difficult for a member of an elected body, in those cases where a decision results in a failure to act, i.e. an omission to act, to prove that he or she has taken a decision on the matter and that the rule applies to him or her. It is therefore appropriate to document sufficiently the reasons leading to the failure to act.

It is a matter of business judgment that a member of an elected body must, in making a decision:

• act in good faith ² The inner conviction of a member of an elected body, which cannot be based solely on subjective ideas and impressions, but must relate to all aspects of business judgment. That is, a member of the body must both reasonably believe in good faith that he or she is acting in an informed manner and reasonably believe in good faith that he or she is acting in a defensible interest of the corporation. ,
• informedly ³ The information that a member of the elected body procures for his/her decision/action must be sufficient for an informed decision to justify the decision and at the same time must be information that is available by the time the decision is made ,
• in the interest of the corporation ⁴ Demonstration of loyalty, i.e. putting the company’s interests ahead of one’s own or third parties’ interests.  

In case that a member of an elected body proves that he or she has acted in accordance with the business judgment rule, this means that he or she cannot be held liable for the damage caused to the company by his or her actions ⁵ For more information see the Supreme Court decisions 29 Cdo 3770/2016 and 27 Cdo 3994/2018. .

By applying the business risk rule, also sometimes referred to as “safe haven“ the legislator aims to ensure that members of elected bodies do not choose solutions that exclude their responsibility in the first place, i.e. that they do not suffer from too much risk aversion. Secondly, this safe haven also ensures that members of elected bodies are not too easily sued by shareholders and thus tend not to put the interests of the shareholder ⁶Actio pro socio who controls the company before those of the company.

The business management of a company includes situations where a member of an elected body decides, for example, whether the company’s debt to debtors will be recovered ⁷ Refer to the decision of the Supreme Court Case No. 29 Cdo 4276/2009 or a decision to pay a company’s debt whose exact amount is disputed ⁸Refer to the decision of the Supreme Court Case No. 29 Cdo 2869/2011 .

The Supreme Court in its decision 27 Cdo 1532/2017 stated, inter alia, that when deciding on a matter falling within the scope of business management, the members of the Supervisory Board must carefully consider the specific circumstances of the dispute and conclude whether the management of the dispute is in the interest of the company (e.g. even if success in litigation is highly likely):” ” … in deciding whether to pursue a claim for damages against a member of the Management Board, members of the Supervisory Board must carefully consider, on the basis of reasonably available information, whether pursuing such a claim is in the best interests of the company. In addition to the criteria outlined, for example, in the Supreme Court’s judgment of 30 March 2011, Case No. 29 Cdo 4276/2009, they must also take into account the specific circumstances of the dispute between the company and the member of its body (the possibility of the claim being brought by a qualified shareholder, the impact on the company’s reputation, etc.)”. In the present case, the issue was that the members of the board of directors had caused damage to the company and it should have been for the supervisory board to assess whether to claim the damage in question.

The assessment of whether a member of an elected body has acted following due care is always individual, i.e. it is not the collective liability of the members of the elected body that is assessed, but the individual liability of each member. 

In the next upcoming episode, you will learn more about the business guidance.