Pursuant to a recent decision of the higher regional court of Naumburg, a German limited liability company (Gesellschaft mit beschränkter Haftung) can be dissolved by judicial judgment if a profound shareholder dispute which had previously prevented the passing of shareholder resolutions cannot be resolved.

In the present case, the court terminated a long-lasting legal dispute between the shareholders of a German limited liability company by dissolving the company. According to the court, the situation did not provide for any less restrictive measures which could otherwise have removed the significant internal conflicts.

Three shareholders each held one third of the company’s total share capital. This was relevant for the number of votes each shareholder could cast in shareholders’ meetings.

Under the company’s articles of association, shareholder resolutions required a majority of three quarters of the votes cast. Accordingly, effective resolutions were dependent on a unanimous decision by all three shareholders.

Two of the shareholders had permanently excluded the claimant and third shareholder from obtaining any information about the business of the company and from receiving access to the company’s financial statements. In addition, the two shareholders had prevented the claimant from participating and voting in the shareholders’ meetings by failing to invite the claimant to these meetings. Earlier court decisions which had confirmed the position of the claimant as shareholder of the company as well as the claimant’s participation rights in the company had been ignored by the two shareholders.

The claimant’s attempt to leave the company by way of redemption of shares (Einziehung) or by way of sale and transfer to the two remaining shareholders of his share in the company failed due to lack of cooperation from the other two shareholders. The shareholders neither agreed on the amount of the claimant’s compensation claim nor on the value of his share in the company.

The court held that the circumstances justified a judicial dissolution of the company for cause under sections 60 (1) (no. 3) and 61 (1) of the German Limited Liability Company Act (GmbHG). Accordingly, a German limited liability company can be struck off by court decision if the implementation of the object of the company becomes impossible or if other internal circumstances justify the closing down of the company.

On the basis of the facts the court concluded that in the present case there existed between the shareholders a profound and unsolvable dispute which rendered unacceptable the continued running of the company in its current state. Furthermore, the court concluded that the shareholder conflict could not be resolved by the exclusion of one shareholder or by the redemption of his shares.

Legal Background

Shareholder membership in a German limited liability company ends (i) by leaving the company or (ii) by the closing down of the company.

A shareholder can leave the company in a number of ways, in particular (i) by sale and transfer or inheritance (section 15 (1) of the GmbHG) or (ii) by redemption of all company shares (section 34 of the GmbHG) as well as (iii) by withdrawal (Austritt) (see section 723 (1) (sent. 2) of the German Civil Code) or by retirement (Ausscheiden) (see section 737 of the German Civil Code and section 140 of the German Commercial Code).

In the event of redemption, and subject to the articles of association, withdrawal or retirement, the former shareholder has a compensation claim against the company (see section 738 (1) (sent. 2) of the German Civil Code) - in the amount of the value of his share in the company at the time of departure.

A company can particularly be terminated by dissolution. The main reasons for the dissolution of a company are (i) a shareholders’ resolution on the dissolution of the company (section 60 (1) (no. 2) of the GmbHG), (ii) an application to court by a shareholder for the dissolution of the company (section 60 (1) (no. 3) and section 61 of the GmbHG) as well as (iii) company insolvency (section 60 (1) (nos. 4 - 5) of the GmbHG).

Higher regional court of Naumburg, decision dated 20 April 2012 (10 U 24/10.Hs)

Daniel Jamin, LL.M. (Sydney)