A private foundation is a legal entity that does not belong to anyone and is therefore ownerless. This construction leads to various problems. Since the private foundation has no owner, the legislator has transferred important control functions, which are otherwise exercised by the owner, to the court. However, the exercise of this control function by the court is sometimes difficult and, above all, can be protracted. This again became apparent in a recent decision of the Supreme Court, which dealt with the important issue of the dismissal of board members for good cause.
One of the control functions granted to the court is to dismiss the members of the board of directors if there are important reasons. In doing so, anyone is free to draw the court’s attention to the existence of such important reasons. In the case at hand, the beneficiaries of a private foundation have alleged important reasons to the court in the form of gross breaches of duty, on the basis of which the court may dismiss the members of the management board. The corresponding application for dismissal for good cause was submitted by the beneficiaries to the court on 8 May 2014. However, both the court of first instance and the court of appeal dismissal dismissed the application to dismiss the members of the Management Board. The two courts justified their decision by stating that the foundation declaration granted the beneficiaries the right to dismiss the members of the foundation’s management board for good cause. The court would therefore only have to deal with this issue if the beneficiaries would not exercise their option/task granted by the declaration of foundation.
Therefore, instead of dealing with the question as quickly as possible whether the foundation’s executive board had actually committed gross breaches of duty, the matter was referred to the Supreme Court. The Supreme Court should first determine whether the lower courts would have to deal with this matter at all, if a body set up by the foundation declaration was also entitled to do so.
Seven months (!) after the application was filed, the Supreme Court decided that the courts would in principle always have to deal with an application to dismiss a member of the board of directors for good cause. This was independent of whether any other bodies appointed for this purpose had been established. However, this still did not result in a decision as to whether the management board had actually committed gross breaches of duty and therefore had to be dismissed.
Apart from the decision of the Supreme Court, which is by all means desirable for the persons concerned, this decision thus shows how lengthy and less practical the control by the courts can be in the case of private foundations. For if the competent court were to come to the conclusion that the executive board had committed gross violations of duty, more than seven months would have passed since the application was filed, during which time the foundation executive board would continue in office. This could theoretically lead to further damage to the private foundation.
As is so often the case in foundation law, these problems can be avoided if the foundation declaration is properly drafted: Therefore, when drafting the deeds, one should always take into account the fact that the control by the court can be a very lengthy process. By the right design, control bodies can be established which precede the judicial control or at least exercise their control activity parallel to the court. Particular attention should be paid to the appointment and control of the foundation’s executive board in order to counteract the danger of the board becoming independent.
