In the protective shield of confidentiality
On the recent decision of the German Federal Court of Justice ("BGH") on the release of professional secrecy by insolvency administrators in insolvency proceedings (BGH StB 44/20, 43/20 and 48/20 of 27.01.2021)
- Holding: In principle, those companies who have a protected relationship of trust with an advisor subject to professional confidentiality (lawyers, auditors, tax consultants, etc.) are authorized to release that advisor from such confidentiality. In particular, in the case of companies, the persons authorized to represent the company at the time of the witness statement are authorized to issue the release declaration.
- New clarification by the BGH: If the relationship of trust in insolvency proceedings concerns matters of the debtor's estate, the insolvency administrator may also be entitled to release the professional secrecy holder from confidentiality.
- Broad scope: These fundamental decisions of the BGH do not only have an impact on proceedings of a parliamentary investigative committee, as in the case at hand, but rather also on civil and criminal proceedings.
- The disclosure of documents may also become relevant in this context.
The question as to who is entitled to release a professional secrecy holder within the meaning of Section 53 (1) of the German Code of Criminal Procedure ("StPO") during insolvency proceedings was previously disputed in the applicable German legal literature and case law due to discrepant court decisions on this issue. The Federal Court of Justice has now shed light on this issue with its three identical leading decisions of January 27, 2021 (BGH, StB 44/20, 43/20 and 48/20): the insolvency administrator can.
In principle, those persons who have a protected relationship of trust with a person subject to professional confidentiality are authorized to release that person from the obligation to maintain confidentiality. In the context of a client-lawyer relationship with an auditor, this generally only includes the client or clients. However, it is now clear that in the event of the opening of insolvency proceedings over the assets of a company and the appointment of an insolvency administrator, the latter is also entitled to release advisors from confidentiality insofar as the relationship of trust concerns matters relating to the insolvency estate.
The background to this decision of the highest German civil court was the refusal of representatives of Wirecard AG's auditing company to testify at a hearing before the German parliament's Investigative Committee tasked with investigating Wirecard's accounting fraud and collapse. The auditors invoked their right to refuse to testify on the basis of their professional duty of confidentiality and therefore did not provide any information in connection with the Wirecard AG mandate. In contrast, the Investigative Committee was of the opinion that there was no right to refuse to testify in favor of the auditors due to the existing declarations of release of the current Management Board of Wirecard AG and its insolvency administrator. For this reason, the Investigatory Committee imposed a fine of EUR 1,000 pursuant to Section 27 (1) of the German Investigatory Committee Act ("PUAG").
The applicants now challenged the imposition of this fine in court. The central question in this context was who can release a professional secrecy holder from the duty of confidentiality in the case of an insolvent company.
The BGH ruled that those persons are authorized to release a person subject to professional secrecy from his duty of confidentiality who have a protected relationship of trust with that person (p. 16). In the context of a client-lawyer relationship with an auditor, these are generally only the client or clients protected by Section 43 (1) sentence 1 of the German Public Auditor Code ("WPO"). In the case of a company, those persons who are appointed to represent the company at the time of the witness statement may submit the declaration of release.
If this release were also dependent on the consent of a third party, this would have the consequence "that the person who makes use of the services of an auditor and in whose interest the person subject to confidentiality acts would be denied the opportunity to give evidence in order to protect its own interests" (para. 19). This would unreasonably extend the scope of the right to refuse to testify within the meaning of Section 53 (1) StPO. Only in "specific special constellations" in which third parties have an individual relationship of trust with the person subject to professional secrecy a separate consideration is necessary (para. 19), according to the BGH.
Consequently, companies are also entitled themselves or through the natural persons acting on their behalf to decide on the confidentiality of professional secrecy holders whom they have commissioned alone. Insofar as natural persons have acted on the part of the company within the professional relationship of trust (e.g. as chairman of the board of directors), it is not necessary that these natural persons also submit a declaration of release. Just because they acted for the company, they did not establish their own protected relationship of trust with the professional secrecy holder (paras. 21, 22), as the BGH has now ruled. This is precisely what had previously been disputed in the legal literature and case law.
If insolvency proceedings have been opened in respect of the assets of a company and an ins
olvency administrator has been appointed, the BGH is of the opinion that the insolvency administrator is also entitled to release the professional secrecy owner from the duty of confidentiality insofar as the relationship of trust relates to matters of the insolvency estate (para. 25). Within the meaning of Section 80 (1) of the German Insolvency Code ("InsO"), the power of disposition of the "owner of the secrets" is transferred to the insolvency administrator in this respect, because the insolvency administrator's rights of administration and disposition do not only extend to the area of property law but go beyond that.
The reason for the intended statement (civil/criminal proceedings or questioning by a committee of inquiry) is irrelevant when assessing the question of the authority to release confidentiality in the context of insolvency proceedings (para. 25). In the opinion of the court, the decisive factor is rather the subject matter of the relationship of trust in question and its significance for the insolvency estate.
In addition, no additional declaration of release by former or current organs of the person holding the secret is required as a rule. The Federal Court of Justice did not make any statement on the case variant that, in exceptional cases, a multilateral declaration of release is necessary. In the underlying case, the auditors were released by both the current Management Board of Wirecard AG and its insolvency administrator.
According to the BGH, the applicants were therefore not entitled to refuse to testify before the investigating committee by invoking Section 22 (1) PUAG, Section 53 (1) sentence 1 no. 3 StPO or for any other reason - instead, there was an effective release within the meaning of Section 53 (2) sentence 1 StPO by the insolvency administrator of Wirecard AG. However, the Senate set aside the corresponding orders due to the lack of personal guilt/fault on the part of the applicants as a result of the unclear legal situation existing at that time.
The ruling thus puts an end to the state of considerable legal uncertainty in an essential area of commercial law and is relevant for both commercial criminal proceedings and civil proceedings with regard to holders of professional secrecy within the meaning of Section 53 (1) sentence 3 StPO - i.e. also for lawyers, notaries, auditors and tax consultants. The question of releasing a person subject to professional secrecy from the obligation to maintain confidentiality is of central importance not only with regard to the protection of the client, but also with regard to criminal law consequences in the event of a breach of the obligation to maintain confidentiality (Section 203 of the German Criminal Code). In addition, the way is now clear for the auditors to testify before the parliamentary Wirecard Investigation Committee with this clarifying ruling by the highest civil court.
The ruling and the resulting strengthening of the insolvency administrator's position is consistent with the understanding of its role in other areas of law as well: For example, under capital market law, the insolvency administrator is obliged to comply with the requirements of ad hoc publicity, a set of duties assigned to the management bodies. Just as they have to report ad hoc, they can also release from the duty of confidentiality. This is a consistent general concept.
What does this mean in practice?
- It is now to be expected that, in the context of insolvency proceedings, the insolvency administrator will release the professional secrecy officers from their duty of confidentiality.
- Since the insolvency administrators have to safeguard the insolvency estate, it can be assumed that the insolvency administrators are regularly obliged to release the professional secrecy holders from their duty of confidentiality to the extent that this serves the purpose of the insolvency proceedings.
- It remains to be seen to what extent third parties will benefit from this for damage claims against the professional secrecy holders, because even if they now have to testify, they still do not have to incriminate themselves, pursuant to German law.
Authors: Anne Pradel and Tom Brägelmann