Action for injunction due to violation of the shareholder's membership rights

If a shareholder's membership rights have been violated by actions of the management board or supervisory board, the shareholder may sue for an injunction. However, the shareholder must file such an action "without undue delay". Otherwise, this action may be rejected solely on the basis of the late filing.

Background

The defendant is a listed stock corporation (AG) and the plaintiff is one of its shareholders. In the annual general meeting, the shareholders of the defendant authorized the management board of the defendant to issue convertible bonds with the consent of the supervisory board. In December 2013, the convertible bonds were fully placed and the associated bond terms – that materially deviated from the previous resolution of the general meeting and contained more extensive protection against dilution than was approved by the annual general meeting – were published on the homepage of the defendant.  However, the plaintiff did contest this decision until much later, namely in the context of a capital increase in October 2014 in connection with which the bonds became relevant as they were issued at a relevantly reduced conversion price. Although the plaintiff had knowledge of this fact since at least November 2014 he filed his claim against this measure only in March 2015.

The decision of the BGH of May 7, 2019, Ref. II ZR 278/16

The Federal Court of Justice (BGH) dismissed the plaintiff’s action because the plaintiff had waited too long before filing its action. According to the BGH the shareholders' duty of loyalty towards the company would have obligated the plaintiff to assert the violation of his membership rights without undue delay. For the assessment whether such condition is fulfilled and whether the action has been in time, it would be necessary to take into account the knowledge of the respective shareholder of the breach of duty. In the present case, the BGH ruled that the plaintiff would have needed to file the lawsuit at the latest with the publication of the reduced conversion price in November 2014. According to the BGH, the action in March 2015 was definitely too late.

Note

The BGH had already decided last year (BGH, July 10, 2018 - II ZR 120/16) that an action should be filed "without unreasonable delay" for actions for a declaration of nullity of supervisory board or management board resolutions. It has now extended this jurisdiction to actions for injunctive relief.

Stock corporations therefore should ensure that the supervisory board or management board resolutions are published as early as possible. Otherwise it remains the risk of legal uncertainty as the period for filing actions for shareholders does not begin until the resolutions have been published.

Shareholders, on the other hand, should immediately examine notifications from their stock corporation and must act soon after becoming aware of a violation of their membership rights (such as dividend entitlement, subscription rights, participation rights, right to equal treatment etc.). Otherwise, they may shareholders lose their rights to prevent an unwanted measure of the management or supervisory board and can only claim damages. Often, it will be difficult to calculate such remaining claim for damages – the plaintiff failed to do so in the present case either and his action was dismissed.