Directors are obliged to notify other directors or, in the case of a sole director, to notify the general meeting/sole shareholder (in a one-tier system) or the supervisory board about their personal interests when acting on behalf of the company.
“Personal interests” are considered to be when a director (or a party related to him/her):
- is a party to a contract concluded with the company
- is a party to legal proceedings commenced by the company
- has financial relationships with a third party the company transacts with or commences legal actions against, if it can be expected that the existence of that relationship will affect his/her actions, or
- has financial relationships with a third party who has a commercial interest in a transaction or legal action with the company if it can be expected that the existence of that relationship will affect his/her actions.
The restrictions above will not apply if the actions are approved by a majority of members in the general meeting (in a one-tier system) or the supervisory board (in a two-tier system). If not, a company/shareholder(s) with more than 5% of the share capital may apply to have the transaction annulled and file a claim for damages. Also, a court may declare a temporary measure, i.e. a ban on a person operating as a director/representative.
Also, any such transaction involving a personal interest will need to be announced by the company on the company’s website and the website of the Agency within 3 days of conclusion of the agreement/undertaking a legal act.
However, a transaction will not be annulled if in a litigation procedure it is proved that: (i) the transaction was in the interest of the company; or (ii) there was no personal interest involved (in scenarios c) and d) above).
In addition, directors must avoid conflicts of interest with the company, and in particular may not:
- use the company’s assets for their own personal interests
- misuse confidential information involving the company
- abuse their position for personal gain, or
- use business opportunities presented to him/her as officers of the company for personal benefit.
These provisions do not apply if the director’s actions are approved by a majority of members in the general meeting (in a one-tier system) or the supervisory board (in a two-tier system).