Dismissal of the managing director by the (unauthorized) shareholders' meeting

As a rule, managing directors are appointed and dismissed by the shareholders' meeting. The articles of association may deviate from this and transfer powers to other company bodies. The Federal Court of Justice (BGH) has now decided what applies if the shareholders want to “reclaim” the authority in such a case.

Facts of the case

The case decided by the BGH concerned the dismissal of the managing director of a limited liability company active in professional soccer in northern Germany.

The sole shareholder (the associated soccer club) had passed a notarized resolution on the dismissal. According to the articles of association, however, the company's supervisory board which had opposed the dismissal would have been responsible for it.

The managing director therefore took legal action against his dismissal, both on the merits and for interim relief, being successful in the first instances where the courts deemed the shareholder’s decision to be null and void. The decision was justified by referring to the fact that the dismissal permanently breached the provisions of the articles of association governing the dismissal of managing directors. According to the courts of first instance, such action would have required a formal amendment of the articles of association to be valid. Such an amendment to the articles of association would, however, have required the consent of the supervisory board due to a voting commitment agreement concluded between the parties involved.

The ruling of the BGH from July 16, 2024 (case no. II ZR 71/23)

The BGH overturned the decisions of the lower courts and dismissed the managing director's claim.

It stated that although the dismissal resolution violated the division of powers agreed in the shareholders' agreement (dismissal of managing directors only by the supervisory board), it was not void, but only contestable. The BGH considered the disregard of the allocation of powers not prescribed by law - in this case: the voluntary transfer of the power to dismiss to the supervisory board -  not to be a serious interference with the essential basic ideas of the law on limited liability companies and, thus, not resulting in a the resolutions being void. Furthermore, the BGH pointed out that the managing director was not authorized to challenge the resolution himself since only the shareholders had the right to bring an action against shareholder’s resolutions.

At the same time, the BGH pointed out that the dismissal of a managing director is a purely selective amendment to the articles of association (i.e. one that does not create a permanent status). The termination of the managing director's relationship with the company's executive bodies was not a situation that was contrary to the articles of association - it would for example also have occurred if the managing director had lost his job in accordance with the articles of association. For this reason, the formal requirements for an amendment to the articles of association (notarization, application to the commercial register, etc.) did not have to be complied with.

Practical note

The shareholders' meeting is the supreme body of a German GmbH. Therefore, according to the statutory model, it is generally responsible for all decisions in the GmbH and can take the decision on almost any measure by resolution. It is therefore not surprising that it is generally always responsible for the appointment and dismissal of managing directors (with the exception of special cases such as the legally co-determined GmbH).

The articles of association can deviate from the statutory regulation of competences and transfer tasks and powers to other company bodies (e.g. supervisory boards, advisory boards or committees) similar to the situation in the given case where the parties involved also protected themselves against changes by way of an additional shareholders' agreement. However, due to the considerable significance of such provisions in the articles of association should be drafted carefully, clearly and appropriately for the company.

If the regulations are nevertheless violated by the shareholders' meeting, there is a certain chance of “getting away with it” in accordance with the BGH’s ruling - at least if no shareholder takes immediate action against the decision. General statements on how similar cases will be decided are however not possible but depend on the individual case: Which competence is to be violated, where is it regulated and how permanent is the breach of the articles of association achieved in this way? After all, just because the dismissal resolution was effective in the case of the BGH, this does not apply in principle to every other company. Regardless of this, it goes without saying: Even if resolutions are not necessarily invalid, breaches of the articles of association or supplementary shareholders' agreements are by no means permitted. In order to avoid claims for damages or comparable sanctions, it is nevertheless indispensable to comply with the company law competence regulations at all times.