What to remember when delegating powers of statutory body?

In practice, we may often encounter the functional distribution of the powers of a statutory body among its individual members, especially where business management is concerned. Statutory body members may thus independently make decisions regarding, e.g., the continuous financing of a company’s operations, ensuring the supply of inventories and sale of goods, marketing presentations and a number of other issues. Certain statutory body powers may also be delegated to third parties. However, the above practice is subject to specific restrictions and rules, as highlighted by the Supreme Court in one of its recent judgments.

Generally, both the internal and external delegation of the powers of a statutory body is acceptable unless the law or the company’s deed of foundation/memorandum of association provides otherwise. The statutory body decides on the delegation of its powers: it must specify what area will be delegated and to whom. Matters falling within the given area will subsequently be decided only by the delegated person.

Yet, the delegation of powers has only an internal effect; it does not affect the company’s external representation, i.e. its acting vis-à-vis third parties. Therefore, the validity of a contract concerning the delegated area cannot be challenged by claiming that it has not been approved by the delegated person. Such a contract is deemed valid as long as the company was duly represented in the manner recorded in the Commercial Register when concluding the contract.

Subsequently, only the most significant business and strategic management issues of the company are usually decided upon collectively. Yet, if the distribution of powers does not prove its worth, the statutory body may, at any time, release a person from the delegated duties, or ‘pierce’ it, on a one-off basis by issuing its own decision on the matter falling within the delegated area.

In practice, most frequently delegated areas are those requiring special knowledge and skills the (other) statutory body members do not have (such as bookkeeping). However, case law also permits the delegation of responsibilities where statutory body members primarily deal with other tasks within the performance of their offices.

The Supreme Court emphasised that upon the internal and external delegation of powers, statutory body members are first and foremost responsible for the proper selection of a person to whom the duty will be delegated. Their duty to proceed with due managerial care also gives rise to their responsibility for clearly specifying the delegated person’s tasks and providing all necessary assistance. In addition, the performance of the delegated powers must be reasonably supervised not only personally by the statutory body members but also by control mechanisms adequately set up for this purpose (e.g. a regular information duty).

Supervision over the delegated powers is vital, since the delegation does not release (other) statutory body members from their responsibility for the proper performance of the delegated power. If damage occurs as a result of a decision made within the delegated area, (other) statutory body members will have to prove that they duly performed their duty of supervision; otherwise, they will have to partake in its compensation.