Ability of a Defunct GmbH to be Party to Legal Proceedings

A company is deemed to be without assets and is deleted from the commercial register pursuant to Section 394(1) of the German Act on Proceedings in Family Matters and in Matters of Non-Contentious Jurisdiction (Gesetz über das Verfahren in Familiensachen und in den Angelegenheiten der freiwilligen Gerichtsbarkeit – “FamFG”) if it has no realisable assets. Upon its removal from the commercial register, the company loses its legal capacity and is therefore unable to be a party to legal proceedings. However, if an opposing party is able to demonstrate that realisable assets do still exist, the company will continue to have legal capacity and be capable of being a party to legal proceedings despite having been removed from the commercial register.

Background

The claimant had brought an action against a defunct limited liability company (Gesellschaft mit beschränkter Haftung – “GmbH”) and another defendant, after an application for the initiation of insolvency proceedings with regard to the former’s assets had been dismissed due to lack of assets and the company had been removed from the commercial register ex officio pursuant to Section 394(1) of the FamFG. Insolvency proceedings were subsequently initiated with regard to the assets of the other defendant, also a GmbH. The claimant contended that the defendant GmbH was not yet without means and thus still had legal capacity to be sued, given that the defunct defendant company had a claim against the insolvent defendant on the grounds of a payment having erroneously been made into the latter’s account.

The district court of Berlin (Landgericht – “LG”) dismissed the claim as inadmissible on the grounds that the defunct defendant company no longer existed and was thus no longer capable of being party to legal proceedings. The appeal brought by the claimant against this decision was dismissed by the Court of Appeal as inadmissible.

The ruling of the BGH dated 20 May 2015, case reference: VII ZB 53/13

The German Federal Court of Justice (Bundesgerichtshof – “BGH”) repealed the decision of the lower courts which had dismissed the appeal as inadmissible. It held that the appeal was allowable and admissible. Given that, pursuant to the established case law of the BGH, the removal of a company from the commercial register does not have a legal effect, a court presiding over a legal action brought against a GmbH that has been subject to such removal will be required to hear evidence as to the existence of additional assets of that company where the claimant puts forward facts that appear to support the accrual of the rights asserted by it, i.e. the existence of realisable assets is indicated. Thus, where a claimant furnishes evidence showing that payments were wrongly made to a third party and not the defunct company, and identifying when this occurred as well as the specific payments and the third party concerned, this is sufficient to justify the bringing of a claim on grounds of unjust enrichment against that third party.

However, in the BGH also dismissed the substance of the claimant’s appeal, holding that, although the latter had put forward arguments substantiating its contentions to the effect that the defunct GmbH did have a claim on grounds of unjust enrichment and that assets were still available, these assets were not to be viewed as realisable assets because, due to the ongoing insolvency proceedings with regard to the assets of the other defendant, they were not capable of being seized and realised for the benefit of the claimant. If the only assets remaining to a defunct company are worthless, the interest of a creditor in obtaining an enforcement order will no longer be deemed worthy of protection, given that there is only a theoretical possibility of any available assets capable of forming the subject matter of enforcement proceedings.

Comment

If a company is without means, it may be removed from the commercial register pursuant to Section 394(1) of the FamFG, ex officio or upon an application to that effect by the fiscal authorities or professional bodies. The deleted company loses its legal capacity to sue and be sued and thus the ability to be a party to legal proceedings. However, the complete winding-up and the discontinuation of the existence of a company is not only contingent upon its removal from the commercial register but also on the non-existence of assets. If a creditor in a legal action is able to prove that the defunct company continues to have realisable assets, it may also bring an action against the defunct company on these grounds with a view to realising those assets for its own benefit. The company has in that case not been fully wound-up and its removal from the commercial register will have been erroneous.

However, concrete manifestations of this scenario are likely to be few. Ex officio removals from the commercial register are often the result of the dismissal of applications for the initiation of insolvency proceedings on the grounds of a lack of sufficient assets to cover the costs of such proceedings and thus a finding by the court to the effect that no relevant assets exist. Moreover, pursuant to the present decision, a creditor is required to show not only that assets are available, but that these are also capable of being realised for that creditor’s benefit.
Nevertheless, further investigation may prove to be worthwhile in individual cases, even where a company has already been removed from the commercial register, given that the BGH continues to hold on to its general view to the effect that even defunct companies continue to have legal capacity to sue or be sued if they still have realisable assets. This also applies to foreign companies, such as English limited liability companies. According to the case law of, for example, the Court of Appeal (ruling of 17 March 2014 – 20 U 254/12), a limited liability company remains capable of being party to legal proceedings before German courts as a so-called “rump company” (Restgesellschaft) even after having been deleted form the Companies Register in England, if the opposing party is able to prove that the company in question has documented and realisable assets in Germany.