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Shareholder Resolutions by Simplified Circulation Procedure According to Section 2 of the German COVID Measures Act - Not Applicable in Case of Provisions on Circulation Procedure in the Articles of Association?

Since the outbreak of the COVID-19 pandemic, shareholders' resolutions in limited liability companies can be adopted by written circulation procedure, even if this is not provided for in the articles of association and if not all shareholders agree to it. In principle, this must also apply if the articles of association contain separate provisions on the circulation procedure. In a recent decision, however, the Stuttgart Regional Court took a different view.

I. Problem

Immediately after the outbreak of the COVID-19 pandemic, the legislator reacted with unprecedented speed and, among other things, created "temporary substantial facilitations for the conduct of [...] shareholders' meetings" of the limited liability company. Section 2 of the COVID Measures Act ("COVMG") provides that shareholders' resolutions may be passed in text form or by casting votes in writing even without the consent of all shareholders, in derogation of Section 48 (2) of the German Limited Liability Companies Act ("GmbHG"). Instead, a simple majority is sufficient - also with regard to the resolution procedure. The relation between Section 2 COVMG (whose period of validity has been extended to December 31, 2021) and provisions in the articles of association on the circulation procedure has been highly controversial since the regulation came into force:

One view considers Section 2 COVMG to be generally inapplicable if the articles of association contain provisions on the circulation procedure - irrespective of the specific form. Others differentiate according to whether the provisions of the articles of association are a mere reproduction of Sec. 48 (2) GmbHG or whether they are "well thought-out" provisions tailored to the circle of shareholders. Others again differentiate according to whether the rules are stricter than those of Sec. 48 (2) GmbHG or whether the requirements for a circulation procedure have already been reduced, for example by a lower quorum. The common denominator of the differentiating views, however, is that Section 2 COVMG should be applicable in the case of provisions of the articles of association which are exhausted in the repetition of the statutory text.

At the end of January 2021, the Stuttgart Regional Court was one of the first courts to deal with the applicability of Section 2 COVMG in the case of existing provisions in the articles of association relating to the circulation procedure.

II. Judgment of Stuttgart Regional Court of January 25, 2021 (Case No. 44 O 52/20 KfH)

1. Facts of the case

The proceedings before the Stuttgart Regional Court concerned the dismissal of a shareholder-managing director by way of a circulation procedure. A majority of the shareholders had voted in favor of his dismissal; however, not all shareholders had approved the resolution by circulation procedure, as provided for in the articles of association in accordance with Sec. 48 (2) GmbHG. The managing director in question then obtained an interim injunction obliging the company to allow him to retain all management and representation powers for the time being and to grant him unhindered access to the business premises. The company appealed against this decision, arguing that Section 2 of the COVMG modified the provision in the articles of association to the effect that the consent of all shareholders was temporarily not required for resolutions to be adopted outside meetings.

2. Decision

The Stuttgart Regional Court upheld the temporary injunction. It took the view that Sec. 2 COVMG merely amended Sec. 48 (2) GmbHG and that the precedence of the provisions of the articles of association over the provisions of Sec. 46 et seq. GmbHG are not affected. Therefore, the provisions of the articles of association regarding the requirements for a resolution by circulation procedure remain in force. The court rejected a supplementary interpretation of the contract according to which it would have been in line with the shareholders' intention to decide by majority resolution by circulation procedure in the event of a pandemic. Although the company was an "international company" with a widely dispersed group of shareholders, unanimity was required for a circulation procedure.

III. Practical advice

The purpose of Section 2 COVMG is to substantially facilitate the passing of resolutions at limited liability companies during the COVID-19 pandemic. In times of contact and travel restrictions, individual shareholders should not be able to prevent a resolution from being adopted or at least make it considerably more difficult by insisting on a meeting being held in person. The decision of the Stuttgart Regional Court does not take sufficient account of this purpose.

If the provision in the articles of association is limited to the literal or analogous reproduction of Section 48 (2) GmbHG, Section 2 COVMG must apply. In such cases, there is no substantively independent, deviating provision in the articles of association, but merely a repetition of or reference to the legal situation. In such cases, the articles of association have to be interpreted in a supplementary manner to the effect that the shareholders, had they considered the possibility of a pandemic, in any case did not intend to make it more difficult to pass resolutions by circulation procedure compared with the statutory concept.

Since the Stuttgart Regional Court focuses on the specific individual case ("international company"), it is unclear whether it considers a corresponding supplementary interpretation of the agreement to be generally excluded. Meanwhile, the Regional Court of Constance has ruled that the legal purpose of Section 2 COVMG can only be achieved if it supersedes not only Section 48 (2) GmbHG but also identical provisions in the articles of association (ruling dated January 29, 2021, Case No. 7 O 20/20 KfH).

The situation is different, however, if the articles of association explicitly exclude a written circulation procedure either in full or for certain resolution items. Then the shareholders have expressed a clear will in this respect. Section 2 COVMG cannot supersede the corresponding provision. It is less clear what should apply if the articles of association contain provisions which represent a simplification compared with Section 48 (2) GmbHG, for example, the requirement of 2/3 of all votes in favor of a resolution by circulation procedure. Here, too, the better arguments speak for a supplementary interpretation of the contract, i.e. for the application of the facilitations of Sec. 2 COVMG.

Notwithstanding this, the decision of the Stuttgart Regional Court once again gives reason to include in the articles of association up-to-date regulations on the passing of resolutions outside of presence meetings.

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