In its ruling dated 09/06/2015, ref. no. II ZR 420 / 13, the German Federal Court of Justice (BGH) confirmed the potential duty of a shareholder to consent to leave a public corporation based on their duty of loyalty, consistent with its much discussed judgment of 19 / 10 / 2009, ref. no. II ZR 240 / 08 (“Restructure or exit”).
In the case in question, the claimant, a closed-end real estate fund in the form of a GbR (company under the German Civil Code), had demanded payment from the defendant of a shortfall in the dissolution balance sheet due to the defendant leaving the company. The claimant’s shareholders meeting had previously decided by a majority of more than 90 per cent that all shareholders should provide a restructuring contribution in the form of a capital reduction with a subsequent capital increase, and that any shareholder not providing this restructuring contribution should leave the company. The defendant had not consented to the decision and had refused to provide the required restructuring contribution.
The background to this judgment is the question as to whether and under what circumstances it is possible to bind shareholders by a majority resolution, especially in relation to extensive cuts. A holdout problem may be created by dissenting shareholders, which can prevent a resolution being passed, particularly in restructuring situations where time is usually of the essence. The fact that the dissenting shareholders remain in the company and consequently benefit from the agreed restructuring measures is in conflict with the interests of shareholders who have contributed to the restructuring measures.
BGH draws on the “Restructure or exit” ruling from 2009
The BGH previously reached a fundamental judgment on this matter in 2009. According to the Court, loss of shareholder status due to a forced exit is only possible with the consent of the shareholder concerned. It stated that this consent could be provided by way of a clause inserted in the articles of association from the outset or added at a later date.
The Court held that a duty to consent was possible in cases where it is urgently necessary given due consideration to the existing corporate relationship or the existing legal relations between the shareholders, and where the shareholder can be reasonably expected to accept a change to the articles of association with due regard to his or her own interests. In the case in question, the shareholders unwilling to contribute were deemed not to have any superior interests that needed to be protected. These shareholders were not placed in a worse position by virtue of their exit, but were rather in a better position than if the company had been liquidated.
The issue of whether this duty of loyalty in a company arises from the contractual relationship between the shareholders or whether the actual effect on the financial interests of the other shareholders provides an obligation of consideration is disputed in the literature.
In its latest ruling, the BGH states that the articles of association form the basis for the duty of loyalty in a company and that they determine the scope and content of such duty. A duty of the shareholders to consent to their exit from the company under their duty of loyalty can also be possible without an express provision in the articles of association in exceptional cases, since this duty of loyalty is intrinsic to any shareholder relationship.
As such, the BGH relied solely on the contractual relationship between the shareholders for the purpose of establishing the duty of loyalty and did not deal with the arguments raised in the literature, meaning that the issue remains unresolved.
Summary: Duty of loyalty can establish a duty to consent
The practical outcome is that binding dissenting shareholders by way of a majority resolution is possible, even if this leads to them exiting the company in special situations. This is particularly relevant in restructuring scenarios and provides a welcome increase in legal certainty.