OGH: Invalid Clause in Advisory Board Rights

Feb 3, 2023 Benn-Ibler Rechtsanwälte GmbH

A foundation’s declaration which makes its scope ‘with regard to’ unspecified ‘staffing’ of the advisory board at least partly dependent on the legal interpretation of its users concerning the existence of violations of ‘mandatory provisions or interpretations by the Austrian Supreme Court (Oberster Gerichtshof, hereinafter OGH)’, thereby not clearly outlining the competences assigned to an extra body established, shall not be registered.

The private foundation in the case at hand had been registered in the commercial register in 2004. The foundation deed and the supplementary foundation deed were amended in two notarial deeds. These documents govern the foundation's board of directors, advisory board, and auditors but also the competence and powers of the advisory board which is granted the right of assent. However, this right of assent is transformed into the right to be heard and to make recommendations whenever staffing violates (‘undefined’) mandatory provisions of the Austrian Private Foundation Act (Privatstiftungsgesetz, hereinafter PSG) and/or its interpretation by the OGH.

The court of first instance rejected the application for registration, and the court of appeal did not uphold the appeal. Both courts considered the advisory board, due to the regulation contained in the foundation deed, as no longer being merely an advisory board, but rather similar to a supervisory board or a board of directors. The regulation in the case at hand would undermine the duty of the Commercial Register Court to audit and, as a consequence, the capacity of the foundation's board to take action.

The Supreme Court therefore argued as follows:

An executive board shall not be degraded to a mere executory body. However, there is nothing to contradict the notion that an advisory board could well be structured similar to a supervisory board. If this is the case, however, the incompatibility provision of Section 23 (2) sentence 2 PSG must be applied. Even in previous decisions, the Austrian Supreme Court had considered a structure including the right to be heard as admissible. In the case at hand, however, the court’s concern was the board’s right of assent making it unclear for the board (for lack of a clear description) if and how staffing might violate mandatory provisions or their interpretation by the OGH. Thus, there is no description of the advisory board’s responsibilities, which means that the advisory board cannot be established as an organ of the private foundation.

OGH 6 Ob 174/22i (18.11.2022)