A limited partner cannot assert claims against external managing directors

The GmbH & Co. KG is a German legal form consisting of a limited partnership (KG) with a limited liability company (GmbH) as general partner. In this way, the unlimited liability of any physical person as general partner can be avoided. The limited liability company as general partner represents the company and is, itself, represented by its managing director(s). These managing director(s) may be external (i.e. no shareholders of the KG) or shareholders expressly appointed to manage the limited liability company.

The German Federal Supreme Court recently decided that – in case of disputes between a limited partnership and an external managing director – a limited partner cannot assert claims of the limited partnership directly against the external managing director.

Background

After the death of the sole limited partner of a GmbH & Co. KG, the heirs sued the external managing director for damages. The heirs were of the opinion that the purchase price of a property that the limited partnership, represented by the external managing director, had bought in 2006 was excessive and that the external managing director knew about this. Therefore, they claimed the excess amount from the external managing director.

The judgment of December 19, 2017 (Case no.: II ZR 255/16)

The German Federal Supreme Court rejected the claims. The court argued that due to the fact that only the personally liable general partner was entitled to assert claims against the managing director, the heirs already lacked the right to take legal action.

Further, an exception in form of a shareholder action (a so-called “actio pro socio”), in which a shareholder can assert claims of the company in his/her own name with payment to the company, did not apply. A shareholder action requires – among other things – a claim of the company (i.e. of the limited partnership) against a shareholder. The external managing director, however, was not a shareholder. Therefore, a shareholder action was not possible and only the limited liability company was entitled to assert claims against the external managing director. With this decision, the court also rejected an exception permitted by parts of the literature, which allows claims against the external managing director in case of special personal interests.

Comment

With this decision the Federal Supreme Court stayed in line with its previous rulings. Since the heirs are sufficiently protected by the possibility of suing the limited liability company as general partner, the decision is acceptable for the practice. In case that the limited liability company does not have sufficient funds, the limited partners may also take recourse to a Directors-and-Officers (D&O) insurance or enforce the limited liability company’s claim for compensation against the managing director.

However, the Federal Supreme Court’s decision concerns only the situation where the managing director of the general partner is not at the same time a shareholder. If the managing director is also a shareholder of the limited partnership, the limited partnership may be entitled to directly claim against the managing director due to existing loyalty obligations. In this constellation, the claim can also be asserted directly by limited partners by way of “actio pro socio” (shareholder action) if the following legal requirements are met: (1) The claimant must be a shareholder without own power of representation, (2) the asserted claim must result from the relationship between the company and a shareholder (e.g. a company’s claim to payment of shareholder contributions, claims for damages for breach of shareholder obligations) and (3) the claim may not be excluded due to, for instance, fiduciary duties.