Overview. Since the beginning of 2024, the Austrian commercial register courts have been required to check whether there is an obstacle to registration due to a criminal conviction ("disqualification") for the person registered as a representative body by means of an automated query from the criminal register (and, if necessary, from the European register interconnection system "BRIS") when registering managing directors and board members. Disqualified persons may not become or remain managing directors or board members for a period of three years. This amendment is based on an EU directive, which was transposed into Austrian law by the Company Law Digitalization Act 2023 (GesDigG 2023).

Bodies affected by disqualification. The new regulation applies to managing directors of an Austrian Limited Company (GmbH) and Flexible Company (FlexCo) (Section 15 para. 1a and 1b GmbHG and Section 1 para. 2 FlexKapGG) and to members of the management board of a stock corporation (AG) (Section 75 para. 2a, 2b and 2c AktG) and cooperative (Section 15 para. 2a, 2b and 2c GenG).

Disqualification only if the materiality threshold is exceeded. "Disqualified" as managing director and board member is anyone who has been sentenced to at least six months' (conditional or unconditional) imprisonment for the criminal offenses listed in the law. The regulations apply to convictions that become final after December 31, 2023. Under certain circumstances (if there are no special or general preventive reasons to the contrary), the legal consequence of disqualification can be conditionally reviewed by the criminal court. In addition to convictions by a domestic court for one of the aforementioned offenses, disqualification is also triggered by a conviction for a comparable criminal offense by a foreign court.

Classic economic offenses relevant. The offenses that can lead to disqualification include classic white-collar crimes in accordance with Section 15 (1a) GmbHG and Section 75 (2a) AktG, whereby a factual connection to the managing director or board member's activities is not required. The relevant offences include fraud (Section 146 of the Austrian Criminal Code), breach of trust (Section 153 of the Austrian Criminal Code), fraudulent fraud (Section 156 of the Austrian Criminal Code), organized illegal employment (Section 153e of the Austrian Criminal Code), grossly negligent impairment of creditor interests (Section 159 of the Austrian Criminal Code), misuse of subsidies (Section 153b of the Austrian Criminal Code), money laundering (Section 165 of the Austrian Criminal Code), agreements restricting competition in public procurement procedures (Section 168b of the Austrian Criminal Code) or tax fraud (Section 39 of the Austrian Fiscal Tax Act).

Effect and time limit of the disqualification. The legal consequence of disqualification is ex lege. From the time the conviction becomes legally binding, there is a material obstacle to the appointment as managing director or board member or the continued exercise of this function. Disqualified persons may therefore not become or remain managing directors or board members. The legal consequence of disqualification is limited in time and ends three years after the conviction becomes final. If the conviction became final more than three years ago, the disqualification expires and the convicted person may be reappointed as a representative body.

Practical tip: Proof of non-disqualification for new appointments. Whether a disqualification exists must generally be checked by the commercial register court (as already explained above). In practice, however, this requirement is not always applied uniformly. In particular, an application for entry in the commercial register of appointed board members with a foreign connection can lead to delays. In the case of new appointments of board members, it has therefore proven useful to submit a corresponding affidavit from the appointed managing director or board member to the commercial register court. In such a declaration, the representative body confirms that he/she has not been sentenced by a domestic court or a foreign court to more than six months' imprisonment for the relevant offenses.

Notification in the event of conviction. In the event of any conviction by a domestic court that triggers a disqualification, the court must notify the commercial register court responsible for the company of the conviction of the member of the governing body concerned by means of an automated process. In this case, the commercial register court must request the company to immediately remove the disqualified person as a representative body and - if necessary (e.g. because the disqualified person is also the only managing director) - to appoint another representative. If the company does not comply with this request in due time, the disqualified person must be deleted from the company register without delay in order to protect legal transactions and to clean up the company register.

Resignation / dismissal for good cause. An already appointed managing director or board member who is disqualified must resign immediately. If, contrary to this obligation, the representative body does not resign of its own accord, its disqualification can also be used as good cause for dismissal.

Conclusion. The amendment will result in a significant change in practice for existing and future managing directors and board members. The restriction is in the public interest and the associated protection of business transactions is to be welcomed. However, managing directors and board members who are named as defendants in criminal proceedings now face - in addition to personal criminal liability - mandatory dismissal as a representative body in the event of a correspondingly qualified conviction.