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The Exemption from the Restrictions of § 181 of the German Civil Code

With the prohibitions on self-dealing (Verbot des Insichgeschäfts) and multiple representation (Verbot der Mehrfachvertretung), § 181 of the German Civil Code (Bürgerliches Gesetzbuch; “BGB”) contains two prohibitions / restrictions on contracting with oneself. If the managing director of a GmbH (i.e. a German private limited liability company) is to be exempted from these restrictions, this must clearly emerge from the relevant documentation; a commercial register application or an associated shareholders’ resolution containing merely an exemption from “the restriction” of § 181 BGB is insufficient, and cannot form the basis of an entry being made in the commercial register.

Background

§ 181 BGB (self-dealing) contains the following provision: “A representative cannot, unless otherwise permitted, conduct a legal transaction with himself in his own name or as the representative of a third party […]”. As a consequence, a managing director cannot represent a company in a transaction with himself (self-dealing) or with a third party (such as another company) that he represents (multiple representation).

This frequently has impractical consequences. Thus a managing director of several group companies, for example, who has not been exempted from the restrictions of § 181 BGB (2nd alternative) cannot represent two of these companies when executing an agreement. It is therefore customary practice to exempt managing directors from the restrictions of § 181 BGB. In this way, the shareholders’ meeting of the GmbH in the present matter had resolved as follows: “Mr. […] represents the company as sole managing director. He is exempted from the restriction of § 181 BGB.”

In reviewing the application of the civil-law notary for registration of the exemption of the managing director from the restrictions of § 181 BGB, the commercial register held that such registration could not be effected due to the lack of a corresponding authorizing resolution of the shareholders’ meeting. The notary appealed against this finding, arguing that the resolution of the sole shareholder could be understood only to mean that the managing director should be exempted from the general prohibition of § 181 BGB;  the provision did not contain several prohibitions, but one general prohibition on self-contracting. The court of first instance rejected the appeal.

Ruling of the Higher Regional Court of Nuremberg (Decision of 12 February 2015, W 129/15)

The Higher Regional Court of Nuremberg similarly rejected the appeal. It held that § 181 BGB contains two different prohibitions which, on the one hand, prohibit self-dealing, and on the other hand, prohibit multiple representation. However, the body (Organ) of a company qualified to appoint the managing directors is entitled to exempt the managing director(s) from the restrictions of § 181 BGB. It is also possible to exempt managing directors only from the prohibition on multiple representation. Such an exemption can be effected either in the articles of association of the concerned entity or by the body authorized to pass resolutions (Beschlussorgan), insofar as this is so authorized to do so in terms of the articles of association (as was the case in the present matter). Any exemption(s) from the prohibitions on self-contracting are then required to be registered with the responsible commercial register.

The commercial register had accordingly correctly held that the general exemption from the restrictions of § 181 BGB could not be registered, given that an appropriate corresponding shareholders’ resolution had been lacking. Certainly, the sentence “He is exempted from the restriction of § 181 BGB” was not to be understood as a mere declaratory fact but as a resolution to issue an exemption. However, according to the unmistakable wording of the resolution, only an exemption from “the restriction” of § 181 had been provided to the managing director. To interpret this as providing that the managing director should be exempt from “both restrictions” of § 181 BGB was impossible under the facts of the present case. The court of first instance had accordingly correctly held that the resolution could not be registered by the commercial register.

Comment

The decision of the Higher Regional Court of Nuremberg reminds us that the question, whether an exemption of the managing director(s) of a company from one or both of the restrictions of § 181 BGB is appropriate or desired, should be considered and reviewed not only when appointing new managing directors, but also independently therefrom, from time to time. If required, a corresponding exemption should be clearly and precisely formulated, in order to avoid possible unpleasant surprises, as happened in the present matter.

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