Minimum Period for Resolutions Passed by Circulation Procedure Pursuant to Section 2 of the COVID Mitigation Act

In the case of a controversial resolution by simplified circulation procedure, a minimum period based on the one-week period of Section 51 of the German Limited Liability Companies Act (GmbHG) also applies in accordance with Section 2 of the COVID Mitigation Act (COVMG) in order to give the shareholders a period of at least one week to consider the matter, unless the articles of association provide otherwise. If the deadline is not met, the resolution is appealable. This was recently decided by the Regional Court of Hamburg with regard to the following underlying facts:

The defendant limited liability company (GmbH) requested the plaintiff (shareholder) to vote by simplified circulation procedure on the redemption of his shares in the company, invoking Section 2 COVMG, and asked for feedback within six days. The plaintiff objected the vote, the allegations made against him and voted "no" purely as a precaution. The defendant stated that the resolution had been passed unanimously.

The plaintiff took successfully legal action against the resolution adopted by the defendant. The Regional Court of Hamburg (February 26, 2021 - 412 HKO 86/20) declared the resolutions null and void. The reason therefore is that minimum deadlines shall be observed for an effective controversial resolution by circulation procedure pursuant to Section 2 COVMG, namely the weekly deadline for convening the shareholders' meeting pursuant to Section 51 GmbHG or any longer statutory convening deadline. In this way, the shareholder is to be given a period for consideration of at least one week - quite irrespective of his voting rights. The response requested by the majority shareholder within six days shortens this period for consideration. This shortening of the period leads to the contestability of the resolution.

Practical advice

There is currently a great deal of controversy surrounding the application of Section 2 COVMG. The decision approaches one of the debatable points. With the COVMG, the legislator intended to create mechanisms to preserve the ability of companies to act even without holding face-to-face meetings. Pursuant to Section 2 COVMG, shareholders of a German Ltd. shall be able to pass resolutions by circulation even without the consent of all shareholders. Section 2 COVMG exclusively replaces the consent of all shareholders to the implementation of the circulation procedure and thus enables resolutions to be adopted by circulation procedure without the consent of all shareholders.

According to case law, the invitation period for shareholders' meetings is now to be applied as a minimum period to the adoption of resolutions by circulation procedure pursuant to Section 2 COVMG. In this respect, the minimum period is based on the weekly period pursuant to Section 51 GmbHG or on any longer statutory period for the invitation to the shareholders' meeting.

In order to ensure that resolutions are adopted by circulation procedure in a legally sound manner, the articles of association shall be examined in advance with regard to deviating provisions, taking into account all circumstances of the individual case. Against the background of the present decision, it is recommended to adopt the invitation period stipulated in the articles of association as the minimum period for adopting resolutions by circulation procedure, at least insofar as the articles of association do not contain any provisions on adopting resolutions by circulation resolution procedure deviating from the law. In addition - as with the invitation to a shareholders' meeting - the postal deadlines shall be observed, subject to any deviating provisions in the articles of association.