BGH (German Federal Court of Justice) confirms minority protection in a de facto group
Voting prohibition of the controlling shareholder when initiating directors’ and officers’ liability claims in the controlled company; minority shareholders are not at the mercy of the majority company without protection.
Based on the idea that a shareholder should not be a “judge in his cause,” the law in Section 47 (4) GmbHG (German Limited Liability Companies Act) or Section 136 (1) AktG (German Stock Company Act) already standardizes statutory cases of voting prohibitions in shareholders’ meetings of corporations. When passing resolutions on the assertion of claims against partners or shareholders, they are also not entitled to vote (Section 47 para. 4 GmbHG, Section 136 para. 1 sentence 1 AktG) if they are a controlling shareholder.
Liability for breach of duty by the management board of a stock corporation when acting in favor of the controlling shareholder.
The Federal Court of Justice (BGH) assumes in its decision of 28.11.2023, ref. II ZR 214/21, that the controlling shareholder is also prohibited from voting if a resolution is passed on the assertion of liability claims against board members (in this case, the management board and supervisory board) of the controlled company and the alleged breach of duty is said to have been committed at the instigation of and for the benefit of the controlling company.
The controlled company had concluded a share purchase agreement to transfer a subsidiary to a group company of the controlling shareholder, which included a sale price of € 34 million that was too high and not in line with the market.
At the request of the minority shareholder, the Annual General Meeting of the controlled AG (German Stock Company) passed a resolution to assert claims against the majority shareholder. The allegation is that the management has damaged the company’s assets by selling the subsidiary below its value. The majority shareholder was excluded from voting on this resolution under Section 136 (1) AktG. A few months later, the shareholder passed a further resolution to assert liability claims against the management and supervisory board of the controlled company based on the same facts. As the wording of Section 136 (1) AktG did not appear to be affected, the controlling shareholder insisted that his vote must be counted. The minority shareholder challenged this in court with a positive action for a declaratory judgment.
BGH: Prohibition of voting even if the extent of the conflict of interest for the controlling shareholder is identical to the case of the claim against the shareholder himself, and therefore, they cannot expect that he will vote in the company’s interests.
In this case, the controlling shareholder should not be able to vote on his behalf.
In a de facto group (control of a GmbH or AG without the conclusion of a control agreement), a particular liability concept for bodies of controlled stock corporations would also arise from Sections 311 et seq. and 318 AktG, at least for the legal form of a stock corporation. They must disclose such breaches of duty for the benefit of the majority shareholder (see Section 318 AktG). The violation of this duty of disclosure is, in turn, itself subject to liability and leads to joint and several liability with the majority shareholder. About this liability concept, in the opinion of the supreme judges, a breach of duty by the Management Board in favor of the majority shareholder would correspond to a violation of duty by the majority shareholder itself. The judges argued that prohibiting the majority shareholder from voting following Section 136 para. 1 sentence 1 case 3 AktG is the only way to ensure compensation claims against the executive bodies of the controlled company.
Transferability to the law of the GmbH?
GmbH law does not have any standards corresponding to the provisions of sections 311 et seq. and 318 AktG for differentiating interests in de facto control situations. Due to the membership-oriented structure of the shareholding relationship in GmbH law and the fact that instructions bind the management of a GmbH, you cannot transfer the statements on stock corporation law to the law of GmbH. Instead, in individual cases, voting prohibitions can be derived from the general duty of loyalty under company law and the principles developed for GmbH law in particular. It is, therefore, necessary to consult a lawyer more often than expected to maintain an overview in cases of conflict among shareholders.
Examination of the legal prospects of success of a liability claim already in the resolution on the assertion of the claim?
On this point, the BGH, referring to its jurisdiction already issued on GmbH law, now also clarifies for the stock corporation that it is sufficient for an effective resolution under Section 147 para. 1 AktG if it “outlines” in detail what the breach of duty and the contribution of the management board or supervisory board should consist of. It is the show of the facts that must be done. The proof of the claim’s likelihood of success must be shown only in the liability litigation.