I. Special Audit in Accordance with German Stock Corporation Law Pursuant to §§ 142 et seq. AktG

The special audit in accordance with stock corporation law pursuant to §§ 142 et seq. AktG constitutes one of the central minority rights for monitoring the management of a stock corporation [Aktiengesellschaft]. Given the very limited rights of inspection of the shareholders regarding a stock corporation’s management, the special audit is often the only possibility to investigate irregularities. This is especially the case where the executive board and the supervisory board of the stock corporation interact collusively or if the mechanisms of checks and balances within a stock corporation become ineffective for other reasons.
The general meeting of a stock corporation may decide on a special audit with a simple majority of the votes cast, provided that the decision covers specific events. The special auditor has to be appointed by name by the general meeting, he has to meet certain qualifications and there may not exist any circumstances in his person that might lead to a prohibition of appointment pursuant to § 143 AktG (e.g. the special auditor was not allowed to act as auditor for the stock corporation at the time of the event to be investigated according to the regulations under the German Commercial Code [Handelsgesetzbuch – HGB]).
Special audits are often used as preliminary stage for asserting claims for damages in accordance with §§ 147 et seq. AktG at a later stage. Therefore, these special audits provide an effective monitoring tool to shareholders.

II. Jurisdiction of the BGH on the Applicability of Corporate Law to Publicly Held Partnerships

The provisions of the special audit regulations in §§ 142 et seq. AktG in their form as corporate law provisions of the German Stock Corporation Act are, however, not directly applicable to Publicly Held Partnerships. For the last few decades, the BGH has allowed the respective application of provisions from corporate law to Publicly Held Partnerships by means of further developing the law – always on the basis of individual decisions – in those cases, where it was considered appropriate “for the protection of investors and in the interest of the functionality of limited partnerships with many members of the public as limited partners [Publikums-KG]” (see e.g. BGH, Judgement of 12 July 1982, NJW 1982, 2500, 2501). Ultimately, the background to this is the fact that the legislature has remained inactive in this respect, but a comparable need for investor protection was recognized by the judicature.

III. Corresponding Applicability of Special Audits under German Stock Corporation Law to Publicly Held Partnerships

1. No Decision by the BGH so far

The BGH has not yet decided whether the special audit under German stock corporation law pursuant to §§ 142 et seq. AktG is applicable to Publicly Held Partnerships and whether a resolution in favor of such special audit can be adopted by the general meeting of Publicly Held Partnerships with a simple majority of the votes cast. For this reason, too, the issue of the applicability of special audit provisions to Publicly Held Partnerships is continually being contendingly discussed in the literature.

2. Higher Regional Court’s Case Law Rejects Applicability

As far as apparent, the question of the applicability of special audits under German stock corporation law has so far been subject of one decision by the Higher Regional Court of Hamm (Judgement of 3 December 2012, I-8 U 20/12, ZIP 2013, 976) and one decision by the Bavarian Higher Regional Court [BayObLG] (Judgement of 4 July 1985, 3 Z 43/85, NJW 1986, 140). In both cases the courts respectively rejected the applicability of regulations for special audits under German stock corporation law. The courts did not see the need for a corresponding application of §§ 142 et seq. AktG to Publicly Held Partnerships.

3. The Decision of the Regional Court of Hamburg

Against this background, the Regional Court of Hamburg (file reference: 411 HKO 31/15) had to rule on the action for a declaratory judgment filed by an investor of the four defendants who were structured as Publicly Held Partnerships.
The plaintiff sought a declaratory judgment ruling that the resolution on the execution of a special audit (under German stock corporation law) had been passed by each shareholders’ general meeting of the four defendants. The shareholder’s resolutions which were deemed effective by the plaintiff were each passed with a majority of more than 50 %, but less than 70 % of the votes cast. The (identical) articles of association of the defendants did not provide for the right to execute a special audit. In order to amend the articles of association, a majority of at least 70 % of the votes cast was required.
The Regional Court of Hamburg dismissed the plaintiff’s claim due to a lack of an effective resolution on the special audit. The resolution of each general shareholders’ meeting on the execution of a special audit regarding each defendant had to be passed with a majority of votes which is sufficient to amend the articles of association which was indisputably lacking in this case. The Regional Court of Hamburg based its decisions on the judgments passed by the Higher Regional Court of Hamm and by the Bavarian Higher Regional Court (see Section III. No. 2 above) and saw no room for a corresponding application of §§ 142 et seq. AktG to Publicly Held partnerships. This ruling was based on the consideration that a loophole requiring a filling was missing within Publicly Held Partnerships. While the shareholders cannot claim any rights of inspection of their documents vis-à-vis their stock corporations outside the annual general meeting, the limited partners of Publicly Held Partnerships were granted control rights in accordance with § 166 HGB whose scope did not require any expansion.
The decision of the Hamburg Regional Court is final and binding after the appeal filed by the plaintiff before the Higher Regional Court of Hamburg was withdrawn.

IV. Consequences for the Practice

Even though the Regional Court of Hamburg followed the (only) two rendered decisions of Higher Regional Courts so far, this does not result in legal certainty regarding the question of the respective applicability of the special audit provisions to Publicly Held Partnerships. Due to the lack of a decision by the BGH on this issue, there is an opportunity for shareholders of Publicly Held Partnerships to make a highly effective monitoring tool feasible and, on the management side, to fight the special audit which contains the risk of substantial liability.
The preparation of a shareholders’ resolution bears high risks of ineffectiveness for the shareholder seeking a special audit due to the specific requirements and the strictness of form of the German stock corporation law. In addition, the shareholder who voted for the special audit has to try regularly to let declare the effectiveness of the resolution on the special audit – also without a majority of votes which is sufficient to amend the articles of association – by filing a declaratory action. For this purpose, the shareholder can rely on the majority opinion within the literature which comprehensively approves the corresponding application of the special audit provisions under German stock corporation law to Publicly Held Partnerships and which is also based on the continuous expansion of the jurisprudence of the BGH on the applicability of corporate law provisions to Publicly Held Partnerships.
From the management’s view of Publicly Held Partnerships, a detailed analysis of the shareholders’ resolution in question and a stringent rejection of the corresponding applicability of the special audit provisions on the basis of the court rulings passed so far and which have now been confirmed by the Regional Court of Hamburg are required in order to successfully fight a shareholder’s action aimed at determining a special audit resolution. This is particularly important in those cases where the general meeting of shareholders adopts a resolution to conduct a special audit with a majority of votes that is not sufficient to amend the articles of association at the same time. In this case, it depends on the controversial issue described in this article on the corresponding application of the special audit provisions under German stock corporation law, because § 142 para. 1 sentence 1 AktG stipulates that the general shareholders’ meeting may appoint a special auditor with (“only”) a simple majority of the votes cast.
Only future disputes and a final decision of the BGH will bring legal certainty for shareholders as well as the management in Publicly Held Partnerships to the question of the applicability of special audits under German stock corporation law in Publicly Held Partnerships.