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  • CONTRACT ON PERFORMANCE OF DIRECTORSHIP AND CONCURRENCE OF OFFICES AFTER CIVIL CODE RECAST

    19. 02. 2014

    The Act on Commercial Companies and Cooperatives, also known as the Act on Corporations (AoC), imposes an obligation to align the existing contracts on performance of directorship in an authorized representative body of a corporation with the new legislation within 6 months after its effect.

    Such contracts must be executed in writing and approved by the highest governing body of the corporation. The new legislation stipulates that unless the remuneration (and its individual components) are agreed upon in the contract in accordance with the Act (Sections 59 and 60 AoC), the office is performed without consideration. Only in some cases, a member of an authorized representative body will be entitled to remuneration considered usual.

    It follows from the above that it is in the interest of the members of authorized representative bodies of corporations as well as in the interest of these corporations themselves to review the contracts on the performance of an office in an authorized representative body as soon as possible.

    In that context it is worth noting that the new legislation has reopened the question of concurrence of offices.

    Since the early nineteen-ninetieth, the relevant case-law of higher courts and later of the Supreme Court has evolved to endorse the opinion that concurrence of offices is not permissible. In their findings, the courts relied on the principle (inter alia in the context of the notion of dependent work) that activities which fall under the scope of work of authorized representative bodies cannot be carried out by the same person who is simultaneously employed by the same corporation (usually on the basis of an employment contract).

    However, between 2012 and 2013, a certain form of concurrence of offices became permissible by way of a Commercial Code amendment of Section 66d (delegation of business management) which was adopted in response to the rulings of the Supreme Administrative Court in the context of social security issues. On the basis of the said provision and subject to particular rules, it became possible to serve in, in concurrence with the office of the member of the authorized representative body (the authorized representative body controls the entire business management of the corporation and the office is/was performed within a commercial relation), a management position (e.g. that of a sales director or CFO) within an employment relationship (typically under an employment contract). The scope of powers of this management position could have included general business management except for the overall direction (of the business management) of the company and several other competencies. This artificial and self-serving, atypical and incorrect construction is not explicitly included in the new private law (both NCC and AoC).

    The current prevailing interpretation by legal experts is that the state preceding the above mentioned amendment has been re-established and the original case-law of the Supreme Court applies which does not permit concurrence of offices (including by way of delegation of business management pursuant to Section 66d of the Commercial Code).

    In order to be sufficiently prudent, we may conclude that as of January 1, 2014 a corporation cannot sign a valid employment contract for a management position with a member of an authorized representative body should the scope of work overlap (albeit partially) with the scope of powers (tasks) of the authorized representative body of the corporation.

    Finally, there have been some pronounced interpretations, which we do not share in the light of applicable legislation, that employment contracts in keeping with Section 66d of the Commercial Code have extinguished as of 1. 1. 2014 and no remuneration may be paid under such contracts.

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