OGH on the admissibility of provisions in the corporate balance sheet

Oct 20, 2020 Benn-Ibler Rechtsanwälte

Recently, the Austrian Supreme Court (Oberster Gerichtshof, OGH) for the first time ruled on the formation of provisions in the annual balance sheet in accordance with the Austrian Commercial Code (Unternehmensgesetzbuch, UGB) for legal costs. In principle, these can only be formed if the proceedings are already pending.

In the underlying facts, the plaintiff claimed that its claim for distribution of the balance sheet profit was nullified by inadmissible provisions. The managing director of the defendant company had unlawfully entered a provision for legal costs in the balance sheet. The defendant applied for dismissal on the grounds that the provisions were mandatory.

In line with prevailing doctrine, the OGH determined that future legal costs are among the uncertain liabilities for which provisions must be set up in accordance with Sec. 198 (8) UGB. However, future legal costs for proceedings not yet pending on the balance sheet date cannot be accrued in principle because the obligation to bear the costs has not yet arisen in law. The main reason for the incurrence of legal cost obligations for the first instance is that a lawsuit is pending and for a later instance that one of the parties has filed an appeal. According to the OGH, an exception to this rule could be if, under consideration of the overall circumstances, the (later) filing of a lawsuit or the actual filing of an appeal is only a self-evident and purely formal act. However, this is not the case in appeal proceedings as long as no decision has yet been issued in the pending first instance proceedings.

The OGH thus determined that a merely recognizable dispute is not yet sufficient to include provisions for future litigation costs in the balance sheet.

OGH 6 Ob 72/20m (25 June 2020)