In the decision of June 25, 2020 (6Ob72 / 20m), the Supreme Court dealt with the question of whether the creation of a provision for legal costs for proceedings not yet pending on the balance sheet date is justified solely on the assumption that a dispute will be brought to court in the future is.
facts
In the present case, the former managing director of the defendant company claims that the inadmissible formation of a provision for litigation costs reduced the company’s net profit and thus prevented a profit distribution. The defendant rejected the allegation on the grounds that the provision was formed on the basis of the plaintiff’s claims, since there was a likelihood of a legal dispute on the balance sheet date.
Decision of the Supreme Court
The Supreme Court has come to the decision that provisions for future litigation costs for proceedings that are not yet pending on the balance sheet date cannot be set up, as there is no legal obligation to bear the costs and the litigation costs were therefore not economically caused in the past financial year. This means that the essential criteria that must be present for the formation of a provision are not met.
For the legal formation of a provision for litigation costs for the first instance, a lawsuit must be pending as of the balance sheet date, and an appeal must have been filed for a later instance. The essential criteria for the formation of a provision can at best be regarded as fulfilled if (taking into account the overall circumstances) the future filing of the lawsuit or, in a later instance, the raising of the legal remedy is taken for granted and thus only represents a purely formal act. This is not the case in appeal proceedings as long as the final decision on the pending proceedings in the instance has not yet been made. However, if it is available on the balance sheet date, the actual appeal can be taken into account as a so-called value enhancing factor.
In the present case, no lawsuit had yet been filed as of the balance sheet date and the bringing of the lawsuit could not be accepted as a purely formal act. Although the plaintiff has already announced that it will continue to enforce the claim, several letters with proposals for solutions have been submitted afterwards. The Supreme Court thus confirmed the legal opinion of the court of appeal that the accused company had formed the provision for litigation costs inadmissibly.
Conclusion
According to the present case law, the sole assumption that legal proceedings will be initiated in the future does not constitute a reason for the creation of a provision for litigation costs. Rather, it is fundamentally necessary that a lawsuit has already been filed on the balance sheet date or an appeal has been filed at a later instance. With the filing of the lawsuit or the filing of legal remedies, the essential criteria for the formation of the provision are fulfilled and the litigation costs can be economically allocated to the past financial year. In addition, the prerequisites for the formation of a provision for litigation costs can be met if the filing of a lawsuit or the filing of an appeal is only a matter of course and therefore a purely formal act.
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