Dr. Hendrik Thies, Fachanwalt für Handels- und Gesellschaftsrechtmeike kapp schwoerer gesellschaftsrecht 2.jpg

On Invalid Shareholder Resolutions

When drafting shareholder resolutions, the required majority must always be observed. The majority required in each individual case is stipulated by law and in the Articles of Association. If the Articles of Association stipulate that certain resolutions require the approval of all shareholders, it can be assumed that changing this regulation also requires the approval of all shareholders. Resolutions concluded without the required majority are invalid.

Background

The plaintiff and the two managing directors were shareholders in the defendant GmbH. The managing directors called a shareholder meeting to make a decision on issues including i) changing Sec. 5 d of the Articles of Association, and ii) approving all employment contracts concluded by the managing directors of the defendant. Sec. 5 d provided, among other, that the managing directors were required to obtain the approval of all shareholders for the conclusion and termination of employment contracts involving a gross annual salary of more than 30,000 DM. At the general shareholder's meeting, Sec. 5 d was changed to the effect that the approval of all shareholders would only be required for employment contracts with a gross annual salary of more than 75,000 EUR. Furthermore, employment contracts concluded by the managing directors in the past were approved. The plaintiff did not participate in the general shareholder's meeting.

In the complaint, the plaintiff applied to have the resolutions declared invalid. The complaint was rejected by the lower courts. The plaintiff then filed an appealed against the decision, stating that the resolutions were invalid because they had not been concluded with the votes of all shareholders, which was required according to the Articles of Association.

The judgment of the Hamm Higher Regional Court of 21 December 2015, docket no. 8 U 67/15

The plaintiff's appeal was partially successful. The resolution to amend Sec. 5 d of the Articles of Association was deemed to require the approval of all shareholders. Although Sec. 5 d only required a unanimous vote to undertake certain legal transactions, this requirement did apply to a resolution to change the regulations of the Articles of Association themselves. If, according to the Articles of Association, certain majorities are required for certain resolutions that do not represent a change to the Articles of Association, it may generally be assumed that a change in that statute would also require that majority. This would be the case, in particular, if the Articles of Association called for the approval of all shareholders for particular measures. According to the Hamm Higher Regional Court, such statutes in Articles of Association should generally be drafted so that all shareholders are granted an individual right of approval. Therefore, the present resolution was invalid without the approval of the plaintiff and the appeal was successful in this respect.

However, the court ruled that the resolution regarding the approval of existing employment relationships did not represent a change to the Articles of Association and that therefore a simple majority of votes was sufficient. Accordingly, there was no basis for declaring this resolution invalid and also no basis for an appeal for declaring the resolution invalid. Furthermore, the plaintiff had already missed the deadline for submitting an appeal. Insofar as the shareholder agreement does not include regulations to the contrary, an action for annulment must be brought as promptly as is reasonably possible, and the one month term provided for in Sec. 246 para.1 of the German Stock Corporation Act (Aktiengesetz – “AktG”) is to be taken as a guide for this deadline. The point in time at which the appeal deadline begins is controversial in jurisprudence and in the literature. The Hamm Higher Regional Court left this question open, since the deadline had passed in any case. Therefore, the appeal against this resolution was not successful.

Comment

When preparing and drafting shareholder resolutions, statutory regulations and regulations in the Articles of Association must be strictly observed. This applies, in particular, for convening general shareholder meetings and for required majorities in concluding resolutions. Appropriate regulations in the Articles of Association can either reduce or increase the requirements for convening a meeting, and can provide additional specifications on the decision-making powers of the general shareholder meeting. Additionally, regulations on an appeals deadline and on the start of the appeals term are reasonable, since the beginning of the term is controversial and the appeals deadline is not clearly legally defined. The decision of the Hamm Higher Regional Court illustrates the fact that Articles of Association must be drafted very carefully.

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