Declaration of Conformity with German Corporate Governance Code
(convenience translation: only the German version is binding)
Pursuant to Section 161 AktG, the Management Board and Supervisory Board of PAION AG are obliged to declare annually that the recommendations of the "Government Commission on the German Corporate Governance Code" (the "Code") published by the Federal Ministry of Justice in the official section of the Federal Gazette have been and are being complied with, or which recommendations have not been or are not being applied and why not.
The Management Board and the Supervisory Board of PAION AG declare pursuant to Section 161 AktG: Since issuing the last Declaration of Conformity in March 2023, PAION AG has complied with all recommendations of the Code in the version dated April 28, 2022 ("GCGC 2022") with the exception of the following deviations:
- Recommendation A.1 GCGC 2022:
According to the new recommendation A.1 GCGC 2022 introduced by the GCGC 2022, the Management Board should systematically identify and assess the risks and opportunities for the company associated with social and environmental factors as well as the ecological and social impact of the company's activities. In addition to long-term economic goals, the corporate strategy should also take appropriate account of ecological and social goals. Corporate planning should include corresponding financial and sustainability-related targets.
Due to the short lead time since the new recommendations on social and environmental factors (often also referred to as "ESG") introduced by GCGC 2022 came into force, the processes required to implement the recommendations in A.1 GCGC 2022 have not yet been fully completed. The identification of environmental and social impacts as well as the consideration of environmental and social objectives in the corporate strategy and their inclusion in corporate planning as provided for in A.1 GCGC 2022 has therefore not yet been completed. However, PAION AG intends to fully comply with the recommendations under A.1 GCGC 2022 in the future.
- Recommendation A.3 GCGC 2022:
According to the new recommendation A.3 GCGC 2022 introduced by the GCGC 2022, the internal control system and the risk management system should also cover sustainability-related objectives, unless already required by law. This should include the processes and systems for recording and processing sustainability-related data.
Due to the short lead time since the new recommendations on ESG introduced by GCGC 2022 in A.3 GCGC 2022 came into force, the processes required to implement the recommendations have not yet been fully completed. The internal control system and the risk management system as well as the processes and systems for recording and processing data therefore do not yet fully cover all sustainability-related objectives and data. However, PAION AG intends to fully comply with the recommendations in A.3 GCGC 2022 in the future.
- Recommendation C.1, sentence 3 GCGC 2022:
According to the new recommendation introduced by GCGC 2022 in C.1, sentence 3 GCGC 2022, the competence profile of the Supervisory Board should also include expertise on sustainability issues of importance to the company.
Due to the short lead time since the new recommendation in C.1 sentence 3 GCGC 2022 introduced by the GCGC 2022 came into force, the competence profile for the Supervisory Board of PAION AG could not yet be expanded to include expertise on sustainability issues of importance to the company. The company intends to carry out an evaluation of the sustainability issues of importance to it and, based on the results, to expand the competence profile accordingly so that the recommendation in C.1 sentence 3 GCGC 2022 is fully complied with in the future.
- Recommendation D.10, sentences 1 and 2 GCGC 2022:
According to Recommendation D.10, sentences 1 and 2 GCGC 2022, as amended by GCGC 2022, expertise in the field of accounting should consist of special knowledge and experience in the application of accounting principles and internal control and risk management systems, and expertise in the field of auditing should consist of special knowledge and experience in auditing. Accounting and auditing also include sustainability reporting and its audit.
Due to the short lead time since the recommendations in D.10 sentences 1 and 2 GCGC 2022, as amended by GCGC 2022, came into force, the members of the Supervisory Board and the members of the Audit Committee do not yet have knowledge and experience in the field of sustainability reporting and its audit. The company intends to build up the relevant knowledge and experience among existing and future members so that the recommendation in D.10 sentences 1 and 2 GCGC 2022 is fully complied with in the future.
- Recommendation F.2 GCGC 2022:
According to recommendation F.2 GCGC 2022, the consolidated financial statements and the Group management report should be publicly accessible within 90 days of the end of the financial year and the mandatory interim financial information within 45 days of the end of the respective reporting period.
With regard to the timing of making the mandatory interim financial information publicly available, the company has not complied with recommendation F.2 GCGC 2022 with effect for the 2023 half-year report and will not do so in future with regard to recommendation F.2 GCGC 2022.
Information from the sales reports of the remimazolam licensees that is essential for the preparation of the half-year reports is not available until the end of July of each year at the earliest. In order to ensure that this information, which is essential for the half-year reports, is always taken into account, the company will not comply with recommendation F.2 GCGC 2022 with regard to the timing of making the mandatory interim financial information publicly available in future either.
With regard to the date of publication of the consolidated financial statements and the Group management report, the company did not comply with recommendation F.2 GCGC with regard to the consolidated financial statements and the Group management report for the 2022 financial year. The deviation from the recommendation was due to the following circumstance, among others:
The annual audit for financial reporting for the 2022 financial year proved to be extremely complex, particularly due to the "European Single Electronic Format". The "European Single Electronic Format" (ESEF) is an EU requirement for all companies that have issued securities within the EU. Accordingly, the companies concerned must prepare their annual financial reports in XHTML format from January 1, 2020. These obligations and the resulting scope were significantly increased again for the 2022 annual financial report. Against this background, the audit of the annual financial statements took a long time, so that the audited annual and consolidated financial statements of PAION AG for the 2022 financial year were not available until May 2023.
Against the background of the application for the opening of insolvency proceedings filed on October 27, 2023, PAION AG will probably also not be able to publish the upcoming consolidated financial statements and the Group management report for the financial year 2023 by the end of March 2024, so that there will be another deviation.
PAION AG will continue to comply with the recommendations of the GCGC 2022 with the aforementioned deviations.
Aachen, December 2023
Supervisory Board of PAION AG
For the Supervisory Board: Michael Schlenk, Chairman of the Supervisory Board
Management Board of PAION AG
Tilmann Bur