The articles of incorporation of company X state that management board resolutions concerning obligations exceeding an interest of ANG 50,000 are subject to the approval of the Supervisory Board. The budget of company X also has to be approved by the Supervisory Board. What if the approved budget for 2015 contains an investment intention for the purchase of cooling equipment for an amount of ANG 150,000? Does the actual purchase hereof have to be approved (again?) by the Supervisory Board later that year?
This is a frequent question of both directors and supervisory directors. As often, the answer is not clear-cut. Actually, it is quite simple. With some common sense you will resolve it. If the investment in question has been adequately clearly described and explained in the budget, permission for it from the Supervisory Board can be deemed to have been granted, also if the actual purchase takes place later that year. So the management board does not have to go back to the Supervisory Board then, not even if the actual purchase requires an amount exceeding the limit stipulated in the articles of incorporation.
If the investment in question has not been contained in the budget very specifically, for instance as ’alteration work, including costs for cooling’, I would advise the management board to go back to the Supervisory Board to separately request permission for the purchase. What if there is doubt? In case of doubt, the motto is simple: don’t do it! In this case it means: in case of doubt, still request permission.
Managing directors often do not like this. That is not because they want to exclude the Supervisory Board, but because requesting permission often takes time and causes delay. That problem can also be easily remedied or prevented. Upon presenting the budget by the management board, it is recommended for them to include explicitly for which tangible ensuing purchases and legal acts the Supervisory Board is already deemed to have given permission by approving the budget. This avoids any possible misunderstanding in a later stage. It is that simple.
And if the budget for 2015 has already been approved last year without the Supervisory Board clarifying the permissions for separate expenses which are contained generally in the budget to you as a director? In that case, place this subject on the agenda for the next Supervisory Board meeting. Go over the budget again together with the Supervisory Board and check the things for which permission can be deemed to have been given. That settles it right away for the rest of the year. This is better than encountering this problem at the last moment. Simple.
Do you have a question about corporate governance yourself? Please e-mail it to firstname.lastname@example.org and perhaps your question will be discussed in the next column!