Corporate Digitalisation Act 2023 - News for managing directors

Until now, Austrian corporate law - unlike, for example, the Austrian Trade Act and also unlike the laws of many other countries - did not contain any explicit legal requirements or groundsfor theexclusion of managing directors or members of the management board. The Corporate Law Digitalisation Act 2023 (Gesellschaftsrechtliches Digitalisierungsgesetz 2023 – GesDigG 2023) has changed this. Among other things, the amendment introduces grounds that exclude a person from holding such a position. The new regulations have been in force since 1 January 2024 and affect limited liability companies (Gesellschaften mit beschränkter Haftung – GmbH), flexible companies (Flexible Kapitalgesellschaft – FlexCo),stock corporations (Aktiengesellschaften), Societas Europaea (SE) and cooperatives (Genossenschaften).

The impulse came from Brussels

The Corporate Law Digitalisation Act 2023 (Gesellschaftsrechtliches Digitalisierungsgesetz 2023 – GesDigG 2023) implements Art 13i of Directive (EU) 2019/1151 amending Directive (EU) 2017/1132 regarding the use of digital tools and processes in corporate law, OJ No. L 186 of 11.07.2019 (Digitalisation Directive). The majority has already been implemented into Austrian law with the GesDigG 2022. Now the provision on the disqualification of certain legal representatives has also been implemented into national Austrian law.

What does the GesDigG 2023 regulate?

The GesDigG 2023 contains amendments to the Limited Liability Companies Act (GmbHG), the Stock Corporation Act (AktG), the Cooperatives Act (GenG), the SE Act (SEG), the SCE Act (SCEG) and the Companies’ Register Act (FBG) and regulates the following in summary:

• Grounds for exclusion of managing directors, members of the management board, directors, etc (so-called disqualification)
• Legal consequences of a disqualification
• Provision of information on disqualified persons via the Business Registers Interconnection System (BRIS).

Grounds for disqualification

The Digitization Directive itself does not specify the exact circumstances that should lead to a disqualification. It is therefore up to the member states to determine the grounds.

The Austrian legislator has based this - with some deviations - on the provisions of the Austrian Trade Act (GewO) regarding trade directors.

According to the provisions of the GesDigG 2023, a managing director (member of the management board, director, etc) may not be a person who has been convicted by a (domestic or foreign) court on the basis of an offense "related to commercial criminal law". The law provides for the following list of offenses:

• Fraud (Section 146 Austrian Criminal Code (Strafgesetzbuch – StGB),
• Embezzlement (Section 153 StGB), acceptance of gifts by a person in power (Section 153a StGB), misuse of subsidies (Section 153b StGB), withholding of employee contributions to social insurance (Section 153c StGB), fraudulent registration for social insurance or the construction workers' holiday and severance pay fund (Section 153d StGB), organised illegal employment (Section 153e StGB),
• Fraudulent crida (Section 156 StGB),
• Damage to third-party creditors (Section 157 StGB),
• Favouring a creditor (Section 158 StGB),
• Grossly negligent impairment of creditor interests (Section 159 StGB),
• Improper representation of material information about certain associations (Section 163a StGB),
• Money laundering (Section 165 StGB),
• Agreements restricting competition in public procurement procedures (Section 168b StGB), Expenditure fraud to the detriment of the financial interests of the European Union (Section 168f StGB), Misappropriation of funds and assets to the detriment of the financial interests of the European Union (Section 168g StGB),
• Tax fraud (Section 39 Austrian Fiscal Criminal Act (Finanzstrafgesetz – FinStrG), or
• Cross-border VAT fraud (Section 40 FinStrG).

Convictions for a comparable criminal offense by a foreign court are also included.

The Austrian legislator is thus primarily aiming at property offenses that primarily serve to protect the interests of the general public or external third parties. Offenses against property without a typical connection to corporations are therefore not included in the catalogue (e.g. damage to property, theft, embezzlement, etc); other offenses are also not included (criminal acts against life and limb, freedom, honour, the environment, sexual integrity and self-determination, etc).

In order to lead to disqualification, criminal convictions for a relevant offense must exceed a certain materiality threshold, which is a prison sentence of more than six months.

These provisions do not yet apply to members of the supervisory board. Nor do they apply to authorized signatories (Prokuristen*innen), for example.

Consequences of disqualification

The legal consequence of a disqualification occurs ex lege. Therefore, no additional court or administrative decision is required to determine the disqualification. As soon as a sentence of more than six months for the aforementioned offenses has become legally binding, there is an obstacle to the appointment or further exercise of the office.

Procedure for new registrationswith the Austrian companies’ register: The disqualification is an obstacle to the registration and must be taken into account by the companies’ register court ex officio. The existence of a disqualification is to be determined by means of an automated search of the criminal record register and, if necessary, by obtaining an excerpt from the criminal record register (Strafregister). If necessary, the registration of the disqualified person shall be refused. In practice, it remains to be seen whether additional documents will have to be provided in the future during the registration procedure (similar to those for trade directors) in order to prove the absence of disqualification to the companies’ register. As rulings of foreign courts are also relevant, this could be time-consuming (i.e. if proof is required that there are no relevant convictions abroad).

Disqualification of already registered managing directors: For every conviction relevant for disqualification by a national court, an automated comparison of the criminal record with the companies’ register must now be carried out. If it is determined that the convicted person is registered with the companies’ register as a managing director (member of the management board, director, etc), the competent companies’ register court shall automatically be notified of the conviction. Then, the competent companies’ register court shall request the respective company to (i) dismiss the disqualified person and, if necessary, (ii) arrange for another legal representative. If the dismissal does not take place within two months at the latest, the disqualified person must be deleted from the companies’ register ex officio. Furthermore, the deleted person shall be deemed to have been dismissed upon expiry of a period of 15 days after entry of the deletion.

Acts of representation: The automatic occurrence of the legal consequences of a disqualification does not affect the validity of the acts of representation of the disqualified managing director. These are effective. If, despite disqualification, an entry is made or subsequently not deleted in the companies’ register, the company must accept the incorrect registration or the registration that has become incorrect against it in its business dealings with third parties.

Declaration of resignation: If a managing director is or becomes "disqualified" within the meaning of these provisions, he/she must immediately declare his/her resignation. The resignation (like resignations for other reasons) only becomes effective after 14 days. This period shall enable the company or the shareholders to find a suitable replacement. Should the disqualified managing director not resign of his own accord, his/her disqualification can be used either to revoke his/her appointment or as good cause for dismissal.

Temporal effect: The legal consequence of disqualification ends three years after the conviction becomes legally binding. After this period has expired, the person can be reappointed as managing director.

Cross-border exchange of information

The Business Registers Interconnection System (BRIS) shall enable the cross-border exchange of information with other EU Member States. The Commercial Court of Vienna (Handelsgericht Wien) is responsible for requests for information on whether a person is subject to disqualification. Upon request for information, the Commercial Court of Vienna must indicate whether a person is disqualified under Austrian law and state the grounds for disqualification.

Conclusion

The Digitalisation of Corporate Law Act 2023 brings significant innovations for practice. By sanctioning that an appointment as managing director or member of the management board, director, etc is only possible with "economic integrity", fraudulent or otherwise abusive behaviour is to be prevented and the protection of all persons interacting with companies is to be promoted.

Please note: This blog is for general information purposes only and in no way constitutes legal advice from Binder Grösswang Rechtsanwälte GmbH. The blog cannot replace individual legal advice. Binder Grösswang Rechtsanwälte GmbH accepts no liability of any kind for the content and accuracy of the blog.