German Federal Court of Justice on the assertion of claims for compensation against the management

Introduction

The German Federal Court of Justice (II ZR 85/23) recently dealt with the question of when, in a two-member GmbH (a limited liability company with two shareholders), an individual shareholder can initiate legal proceedings against the company’s managing director without a prior resolution and whether they are also authorised to represent the company (in particular when appointing a legal representative). The decision is also of interest in Austria.

Facts of the matter

In the case before the German Federal Court of Justice (which also has relevance for Austria), the plaintiff, a minority shareholder, attempted to assert the company's claims against the managing directors by shareholder resolution. The majority shareholder, represented by the defendant managing directors, voted against the assertion of claims. The plaintiff filed an actio pro socio (lawsuit against the managing directors seeking compensation for the company).

Reasons for the decision of the German Federal Court of Justice

The German Federal Court of Justice rejected the actio pro socio. It examined whether the company's asserting claims against its managing directors and appointing legal representation in this context required a prior shareholder resolution.

According to the German Federal Court of Justice, a resolution to assert claims for compensation is not required if the other shareholder of the two-member GmbH is subject to a voting ban. The resolution was a "redundant formality". This also applies to the resolution on the appointment of a legal representative.

As the remaining shareholder with voting rights in the two-member GmbH, the plaintiff is therefore directly authorised to represent the company in the proceedings or to appoint a legal representative. In doing so, the German Federal Court of Justice endorses a view previously held primarily by the Higher Regional Court of Munich – contrary to important opinions in legal literature. This is convenient for the minority shareholders: the risk of legal costs is borne by the (represented) company itself.

Comparison with Austrian law

In Austria, the legal situation regarding the assertion of claims for compensation against the management differs slightly. However, the problems that arise in practice (how can a minority shareholder initiate claims for compensation against managing directors?) remain the same.

The enforcement of claims against managing directors falls under the competence of the general meeting (Section 35 para. 1 no. 6 of the Austrian Limited Liability Companies Act (Gesetz betreffend die Gesellschaften mit beschränkter Haftung – GmbHG)). This pertains to both (i) the assertion of claims itself (Section 35 para. 1 no. 6 first case of the GmbHG) and (ii) the appointment of a legal representative (Section 35 para. 1 no. 6 second case of the GmbHG). Unlike in Germany (Section 46 no. 8 of the German GmbHG), this is a mandatory provision (Section 35 para. 2 of the Austrian GmbHG).

In practice, the controlling majority will attempt to block the assertion of claims against "their" managing director, especially when the majority shareholder is also a managing director – despite the existence of a voting ban on the resolution.

In many constellations, however, a resolution on the assertion of claims against managing directors is not required:

·         The pursuit of repayment claims in accordance with Section 83 of the GmbHG does not require a prior shareholder resolution. Shareholder resolutions that are directed against the assertion of the claim for repayment of unlawfully made payments would be null and void (The Supreme Court of Justice of the Republic of Austria (OGH) 6 Ob 72/16f).

·         Further, a resolution is not required in all cases where the assertion of claims is necessary for reasons of creditor protection (e.g. in insolvency).

·         An application for an interim injunction does not require a resolution either, as this would conflict with the purpose of interim legal protection (OGH 6 Ob 71/21s).

·         Relevant in the present context: According to the Supreme Court, a resolution is also not required if it is a "mere formality" (OGH 8 ObA 62/11t). However, case law in Austria is inconsistent on whether such a mere formality also applies if the majority shareholder in a two-member GmbH is prohibited from voting (OGH 9 ObA 358/98g and 9 ObA 5/10s : no resolution required; OGH 2 Ob 170/03v and 2 Ob 328/01a: resolution required).

If a resolution to assert claims is passed (Section 35 para. 1 no. 6 first case of the GmbHG) or if no resolution is required but there is a lack of representation, a legal representative must be appointed to assert claims for compensation (Section 35 para. 1 no. 6 second case of the GmbHG).

But here too, the controlling majority will often attempt to block such resolutions despite being subject to a voting ban (OGH 6 Ob 130/05v).

For minority shareholders, the question therefore regularly arises as to how claims for compensation against the managing director can be initiated efficiently (in particular without "prior" challenging the resolution):

·         Both the appointment of an court-appointed managing director and the appointment of a special representative for conflicts of interest (Kollisionskurator) are in principle subsidiary to measures under company law (in particular the appointment of a legal representative). However, if no resolution is required to assert claims for compensation (see above) or if no legal representative is appointed despite a resolution to assert claims, a (minority) shareholder may be able to appoint a court-appointed managing director or special representative for conflicts of interest (OGH 6 Ob 71/19p).

·         If the assertion of claims for compensation is rejected by shareholder resolution, the (qualified) (minority) shareholder can take legal action directly against the managing director (Section 48 of the GmbHG). Disadvantage: full cost risk of the suing minority shareholder. German law has no comparable provision.

Austrian law provides minority shareholders with instruments to assert claims for compensation against managing directors. According to the German Federal Court of Justice, the minority shareholder in a two-member GmbH can even represent the company when asserting claims for compensation if a resolution is merely a "redundant formality". This is especially the case if the other shareholder would be subject to a voting ban. It remains to be seen whether the decision of the German Federal Court of Justice will also have an influence on the case law of the Austrian Supreme Court of Justice.

authors: Gabriel Ebner & Georg Steidl