Last Updated on May 29, 2021 by LawEuro
Stock Corporation Act (Laws / Regulations of Germany)
Chapter 3
Special audit for impermissible understatement
Section 258
Appointment of special auditors
(1) Where there is cause to assume that
1. Certain items have been understated to a greater than negligible degree in annual accounts that have been approved and established (section 256 (5), third sentence), or
2. The notes do not provide the required information, or not completely, and the management board has failed to provide the missing information at the general meeting in spite of inquiries having been made in its regard, and a demand has been made to include the question in the minutes,
the court is to appoint special auditors upon a corresponding petition having been filed. The special auditors are to audit the items regarding which an objection has been raised with a view to ascertaining whether they have been understated to a greater than negligible degree. They are to audit the notes with a view to ascertaining whether the required information has not been provided, or not completely, and the management board has failed to provide the missing information at the general meeting in spite of inquiries having been made in its regard, and a demand has been made to include the question in the minutes.
(1a) In the case of credit institutions or financial services providers as well as in the case of capital management companies in the sense of section 17 of the Investment Code (KAGB), no special auditor may be appointed pursuant to subsection (1) insofar as the understatement or the lack of information in the notes is the result of section 340f of the Commercial Code (HGB) having been applied.
(2) The petition must be filed within one (1) month following the general meeting as to the annual accounts. This shall apply also if the annual accounts are to be audited anew pursuant to section 316 (3) of the Commercial Code (HGB). The petition may be filed solely by stockholders whose shares of stock, taken together, are at least equivalent to the threshold value set out in section 142 (2). The petitioners shall deposit the shares of stock until a decision is taken on their petition, or shall submit an assurance from the depositary institute that until such decision the shares of stock shall not be disposed of, and moreover shall demonstrate to the satisfaction of the court that they have been the holders of the shares of stock for at least three (3) months prior to the date of the general meeting. A statutory declaration in lieu of an oath made to a notary shall suffice as satisfactory demonstration.
(3) Prior to the appointment, the court is to hear the management board, the supervisory board, and the auditor of the annual accounts. A complaint may permissibly be lodged against the decision taken. That regional court (Landgericht) shall take the decision on the petition pursuant to subsection (1) in the judicial district of which the company has its seat.
(4) Solely auditors and audit firms may be special auditors pursuant to subsection (1). Section 319 subsections (2) to (4), section 319a (1), and section 319b (1) of the Commercial Code (HGB) shall apply mutatis mutandis to their selection. The auditor of the company’s annual accounts and persons who served as the auditor of the company’s annual accounts in the past three (3) years prior to the appointment may not be special auditors pursuant to subsection (1).
(5) Section 142 (6) governing the reimbursement for reasonable cash expenditures and the remuneration of court-appointed special auditors, section 145 subsections (1) to (3) governing the rights of the special auditors, section 146 governing the costs of special audits, and section 323 of the Commercial Code (HGB) governing the liability and responsibilities of the auditor of the annual accounts shall apply mutatis mutandis. The special auditors pursuant to subsection (1) shall have the rights pursuant to section 145 (2) also vis-à-vis the auditor of the company’s annual accounts.
Section 259
Audit report. Conclusive determinations
(1) The special auditors are to submit a written report on their audit. Should the special auditors become aware, in the performance of their duties, that items have been overstated (section 256 (5), second sentence), or that the regulations governing the organisational structure of the annual accounts have been violated or forms have not been complied with, they are to report on this fact as well. Section 145 subsections (4) to (6) shall apply mutatis mutandis.
(2) Where according to the result of the audit the items regarding which an objection has been raised have been understated to a greater than negligible degree (section 256 (5), third sentence), the special auditors are to declare, in a conclusive determination at the end of their report:
1. The minimum value at which the individual assets items were to be stated, and the maximum amount at which the individual liabilities items were to be stated;
2. The amount by which the surplus for the year would have increased, or by which the shortfall for the year would have been reduced, had these values or amounts been stated.
The special auditors are to base their judgment on the circumstances given at the cut-off date of the annual accounts. They are to base the statement of the values and amounts pursuant to no. 1 on that valuation and amortisation method that the company has used most recently in order to valuate the objects to be valuated, or comparable objects, in a permissible manner.
(3) Where, according to the results of the audit, the items regarding which an objection has been raised have not been understated, or only to a negligible degree (section 256 (5), third sentence), the special auditors are to declare, in a conclusive determination at the end of their report, that according to their audit and judgment, performed in keeping with their professional duties, the items regarding which an objection has been raised have not been impermissibly understated.
(4) Where, according to the result of the audit, the notes do not provide the required information, or not completely, and the management board has failed to provide the missing information at the general meeting in spite of inquiries having been made in its regard, and a demand has been made to include the question in the minutes, the special auditors are to provide the missing information in a conclusive determination at the end of their report. In the case of a failure to state deviations from valuation or amortisation methods, the conclusive determination is to also state the amount by which the surplus for the year or the shortfall for the year would have been higher or lower had the deviation not occurred that it was failed to state. Where, according to the result of the audit, there was no failure to provide information pursuant the first sentence, the special auditors are to declare, in a conclusive determination at the end of their report, that according to their audit and judgment, performed in keeping with their professional duties, there was no failure to provide the required information in the notes.
(5) The management board is to give notice without undue delay in the company’s publications of record of the conclusive determinations of the special auditors pursuant to subsections (2) to (4).
Section 260
Court decision as to the conclusive determinations by the special auditors
(1) The company or stockholders whose shares of stock, in the aggregate, are at least equivalent to one twentieth of the share capital, or to a stake of 500 000 euros, may file a petition for a decision to be handed down by the court having jurisdiction pursuant to section 132 (1) against the conclusive determinations by the special auditors pursuant to section 259 subsections (2) and (3), provided they do so within one (1) month of such determinations having been published in the Federal Gazette (Bundesanzeiger). Section 258 (2), fourth and fifth sentences, shall apply mutatis mutandis. The petition must be directed at obtaining a declaratory judgment regarding the minimum amount at which the assets items designated in the petition should have been stated, or the maximum amount at which the liabilities items designated in the petition should have been stated. The petition of the company may also be directed at obtaining a declaratory judgment that the annual accounts did not set out the understatements established in the special auditors’ conclusive determinations.
(2) The court shall take the final decision on the petition at its equitably exercised discretion, taking account of all circumstances. Section 259 (2), second and third sentence, shall apply. Inasmuch as completely clearing up all relevant circumstances would entail significant difficulties, the court is to estimate the values or amounts to be stated.
(3) Section 99 subsection (1), subsection (2), first sentence, subsections (3) and (5) shall apply mutatis mutandis. The court is to serve its decision to the company and, if stockholders have filed the petition pursuant to subsection (1), also to the stockholders. Further, it is to give notice of same, without providing the reasoning, in the company’s publications of record. The company and the stockholders whose shares of stock, in the aggregate, are at least equivalent to one twentieth of the share capital, or to a stake of 500 000 euros, shall be entitled to lodge a complaint. Section 258 (2), fourth and fifth sentences, shall apply mutatis mutandis. The period within which a complaint must be lodged shall commence running upon notice of the decision being given in the Federal Gazette (Bundesanzeiger); however, it shall not commence running for the company prior to the decision having been served to it, nor shall it commence running, if stockholders have filed the petition pursuant to subsection (1), for the stockholders prior to the decision having been served to them, either.
(4) Where the court complies with the petition, the costs are to be imposed on the company, in all other cases on the petitioner. Section 247 shall apply mutatis mutandis.
Section 261
Decision as to the revenue by reason of a higher valuation
(1) Where the special auditors have declared in their conclusive determination that items have been understated, and where no petition for a court decision has been filed against this determination within the period specified in section 260 (1), the items are to be stated in the first annual accounts drawn up following expiry of said period at the values or amounts established by the special auditors. This shall not apply insofar as, due to changed circumstances, and namely in the case of objects that are subject to wear and tear, a lower value is to be stated for assets items or a higher amount for liabilities items as a result of such wear and tear pursuant to sections 253 to 256a of the Commercial Code (HGB) or in accordance with generally accepted accounting principles. In such event, the reasons are to be stated in the notes, and the manner in which the special auditors have developed the values or amounts established to become the value or amount stated pursuant to the second sentence is to be presented in a separate statement. Where the objects no longer exist, this is to be reported in the notes, as well as the appropriation of the revenue from the disposal of such objects. For the individual items of the annual balance sheet, the differences in amount are to be noted by which the assets items were stated at a higher value or the liabilities items were stated at a lower value due to the first and second sentences. The sum total of the differences in amount is to be recognised separately on the “Liabilities” side of the balance sheet, and in the income statement as “revenue from a higher valuation pursuant to the result of the special audit.” Where the company is a small share capital company (section 267 (1) of the Commercial Code (HGB)), it is to apply the third and fourth sentences only if the pre-requisites of section 264 subsection (2), second sentence, of the Commercial Code (HGB) are met, taking account of the special audit performed pursuant to this Chapter.
(2) Where the court seised with the matter pursuant to section 260 has established that items have been understated, subsection (1) shall apply mutatis mutandis to the statement of the items in the first annual accounts drawn up after the decision by the court has become final and conclusive. The differences in amount are to be recognised on the balance sheet as “revenue from a higher valuation pursuant to the decision by the court.”
(3) The revenue resulting from a higher valuation pursuant to subsections (1) and (2) shall not be counted, in applying section 58, as part of the surplus for the year. The general meeting shall decide on the appropriation of the revenue reduced by the taxes to be remitted therefor, unless a net loss is recognised in the annual accounts that is not covered by capital reserves or retained income.
Section 261a
Notifications to be made to the Federal Financial Supervisory Authority (BAFin)
If the company has issued securities in the sense of section 2 (1) of the Securities Trading Act (WpHG) that are admitted to trading on the regulated market at a German stock exchange, the court is to notify the Federal Financial Supervisory Authority (BAFin) of the receipt of an application for appointment of a special auditor, each decision as to the appointment of special auditors that has become final and conclusive, the audit report, as well as a final and conclusive decision by the court as to the conclusive determinations by the special auditors pursuant to section 260.
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