The German Federal Court of Justice (BGH) recently held that a provision in an agreement concluded between a public limited company (AG) and a shareholder according to which the shareholder - who became shareholder in return for consideration – in the event of termination of the contractual relationship is obligated to re-transfer its shares to the AG for no consideration is void. Accordingly, even though the agreement between the AG and shareholder expired, the shareholder still remains shareholder of the AG.

In this particular case, the applicant AG provided a network system for insurance brokers. It had entered into a partnership agreement with the defendant insurance broker on the provision of advice and support services. Under this partnership agreement, the insurance broker acquired 25 shares, each in the nominal amount of EUR 52. It was agreed – not in the articles of association but in the partnership agreement – that the insurance broker was obligated to re-transfer all of its shares without charge in case the partnership agreement expired. After having terminated the partnership agreement the AG requested the re-transfer of the shares but the insurance broker refused to do so.

The BGH held that an obligation of a shareholder to re-transfer its shares to the AG for no consideration is contrary to public policy and therefore void (section 138 (1) German Civil Code). In general, the actual value of the shares of a departing shareholder is to be refunded. Details on how to calculate the appropriate compensation was not the subject matter of this particular judgment. The calculation is, however, subject to the individual circumstances and facts of each case. Current German legal literature and case law have not set any fixed limits. Nevertheless, it is likely that a provision according to which a compensation payment of less than 50% of the actual value needs to be paid will be deemed to be void.

The court held that not just the calculation of the compensation payment is void but the entire provision including the withdrawal of the shareholder. Accordingly, the insurance broker was neither forced to leave the AG nor to re-transfer its shares.

Still in dispute is the question of whether a shareholders’ agreement can be validly concluded between the company and a shareholder at all. Some legal scholars argue that an agreement which also relates to the shareholding cannot be concluded between the AG and shareholders because it would allow the board – in conflict with the internal competence regime of the company - to decide on the composition of shareholders. To be on the safe side, such agreements should therefore be concluded between all shareholders without any participation of the company.

German Federal Court of Justice, decision dated 22 January 2013 (II ZR 80/10)

Dr Marco Zessel