Passing of Judgements and Covid-19 Pandemic in Limited Liability Companies (GmbHs) with International Shareholders (Regional Court Stuttgart)

In its judgment of February 10, 2021 - 40 O 46/20 KfH - the Regional Court of Stuttgart dealt with Covid-19-related issues of corporate law. In the judgment, the Regional Court convincingly justifies that the provisions of the Covid-19 Act for facilitated decision-making during the Covid-19 pandemic does not apply and why extended notice periods may be necessary when scheduling shareholders' meetings in the current pandemic situation.

Both aspects are likely to be of high practical importance in particular for Limited Liability Companies with an international group of shareholders.

Priority of the Shareholders' Agreement in the Covid 19 Pandemic as well

With Art. 2 Sec. 2 Covid-19 Act, the legislator has facilitated the holding of shareholders' meetings by lowering the hurdles for adopting resolutions without shareholders' meetings pursuant to Sec. 48 (2) GmbHG (Limited Liability Companies Act). Pursuant to Art. 2 Sec. 2 Covid-19 Act, in contrast to Sec. 48 (2) GmbHG, resolutions of the shareholders may be adopted in text form or by submitting votes in writing even without the consent of all shareholders. Accordingly, a resolution may be adopted via Whatsapp, for example, even in the case of controversial issues on which there is no consensus among the shareholders.

Since the introduction of Art. 2 § 2 of the Covid 19 Act, there has been some dispute in the legal literature as to whether the Covid facilitations also apply if the shareholders' agreement contains its own (stricter) provisions for passing resolutions outside shareholders' meetings. This set of questions is of particular interest to shareholders who, in times of pandemic, are dependent on the adoption of resolutions by means of remote communication because it is impossible or difficult to travel across borders.

The Regional Court of Stuttgart has now stated its position on this. The subject of the decision was a Limited Liability Company whose Articles of Association provided for resolutions to be adopted without a shareholders' meeting only "with the consent of all shareholders". In the view of the Regional Court, a resolution was only possible by mutual agreement due to the Articles of Association. The facilitation of Art. 2 § 2 Covid-19 Act did not apply.

According to the Regional Court, the Covid facilitations do not apply if the shareholders' agreement contains special provisions on the passing of resolutions. Rather, the shareholders' agreement takes precedence in such cases because Art. 2 Sec. 2 Covid 19 Act merely amends Sec. 48 (2) GmbHG and does not interfere with Sec. 45 (2) GmbHG. § Sec. 45 (2) GmbHG expressly provides that in the lack of special provisions in the shareholders' agreement, the provisions of Secs. 48 to 51 GmbHG shall apply.

To support this, the Regional Court cites constitutional considerations: "This also appears to be constitutionally required, as otherwise there would be an infringement of contractual autonomy and of the rights of minority shareholders protected by Article 14 (1) sentence 1 of the German Basic Law. That such an infringement of fundamental rights would have been intended by the legislator cannot be concluded."

Extended Notice Periods and Duty to reschedule due to Travel Restrictions During Covid Pandemic

Particularly in the case of companies with an international group of shareholders, travel to shareholders' meetings is associated with difficulties due to the Covid-19-related travel restrictions and quarantine obligations. If the notice period for convening a meeting is only one week - as is the case under the law - it is often almost impossible to arrive in time.

Against this background, the Regional Court strengthens the rights of Limited Liability Companies shareholders abroad. In the view of the Regional Court, the interests of the shareholders must be taken into account in view of the importance of the right to attend a shareholders' meeting. This applies in particular in the current pandemic situation: "For [the Limited Liability Company] it was obvious at the same time that a journey to a shareholders' meeting could not be planned and achieved in a similarly short time as would be the case in 'ordinary times' in view of the travel restrictions due to the pandemic. For example, the 14-day period of quarantine obligations when entering Germany from certain areas was common knowledge."

A shareholders' meeting which is scheduled in such a way that (Covid-19-related) travel difficulties of the shareholders are not sufficiently taken into account may therefore be defective, even if the formal form and deadline requirements have been complied with.

Shareholders whose right to participate has been curtailed because the notice period for convening the meeting was too short may bring an action to set aside resolutions they do not like.

In short:

  1. Facilitation of passing resolutions in Limited Liability Companies according to Art. 2 § 2 Covid-19 Act may not be accessible for such Limited Liability Companies whose Articles of Association contain special provisions on passing resolutions.
  2. Especially in the case of controversial resolutions, a general meeting of shareholders must be held in person in order to pass resolutions effectively if consensus is required by the Articles of Association for resolutions to be passed by means of remote communication.
  3. In the case of Limited Liability Companies with an international group of shareholders, there will regularly also be a great need for resolutions on controversial issues to be adopted by means of remote communication. In such cases, a careful review and, if necessary, revision of the Articles of Association is advisable before passing a resolution in order to avoid erroneous resolutions. Consensus requirements for passing resolutions without presence should be replaced by more practical procedural provisions.
  4. Managing directors who invite shareholders resident abroad to a shareholders' meeting should take into account difficult travel conditions, in particular by setting a generous invitation period, and should postpone the date of the shareholders' meeting if unforeseen travel difficulties arise.
  5. Shareholders who have been ignored due to insufficient notice periods shall be entitled to file an action for rescission against the defective resolutions.

Our "Business and Economy" and "International Business" competence teams will be happy to advise you on this: