I. Statutory Scheme of Default Liability under German GmbH Law

The characterizing structural feature of a GmbH is the liability of its shareholders which is limited to the respective original capital contribution. The provision of assets (so-called share capital) to the company by the shareholders and the preservation of the share capital in the company thus form a central pillar of the legally mandatory concept of creditor protection in German GmbH law.
Each shareholder of a GmbH is obliged to effect the contribution attributable to his or her company share (sections 14, 19 of the German Law on Limited Liability Companies [GmbHG]). In addition, the difference at the time of the registration of the company in the commercial register between the actual value of the company assets and the nominal share capital, i.e. the so-called adverse balance [Unterbilanz], is allocated proportionally among the shareholders.
If a shareholder does not effect his or her due contribution or if he or she does not satisfy the company’s claim arising from the liability for adverse balance at maturity, his or her company share may be forfeited with the result of the shareholder’s loss of all rights to this company share in favor of the company. In this case, the forfeited company share is transferred to the company on a fiduciary basis (section 21 para. 2 sentence 1 GmbHG) and the forfeited shareholder nonetheless remains obliged to the company to pay for any outstanding company claims (section 21 para. 3 GmbHG). In addition, the company may take into recourse the shareholder’s legal predecessors by means of a so-called staggered recourse ([Staffelregress], section 22 GmbHG). In the case that there are no legal predecessors or if such are insolvent, the company share is to be realized – generally by public auction (section 23 GmbHG).
To the extent that the company is not able to recover an outstanding contribution or compensation claim for an adverse balance neither from the forfeited shareholder nor from its legal predecessors and if the realization of the share also remains unsuccessful in whole or in part, the other shareholders are liable for the deficit in proportion to their company shares pursuant to section 24 GmbHG. In the decision dated 18 September 2018 (file no. II ZR 312/16), the German Federal Court of Justice [BGH] closely examined such default liability.

II. Facts of the Case

When the company was founded in June 2004, the founder (and sole shareholder) of the Ein-Mann-GmbH (a limited liability company founded and operated by one sole shareholder) with a share capital of EUR 25,000 had not fully paid up his capital contribution to be paid in cash at maturity. At the time the company was registered in the commercial register in August 2004, there was already an adverse balance of more than EUR 32,000. In 2005, the shareholder split up his company share. He kept 70 % of the shares for himself. He sold and transferred two shares of 15 % each to two new shareholders, who later became the defendants. The company was notified of the shareholder position of the two new shareholders, however, the list of shareholders was not updated. Later on, one of the two new shareholders declared the purchase of his share void and revoked the notification of his shareholder position to the company. Insolvency proceedings were initiated against the assets of the GmbH in 2006.
In the final instance before the BGH, the two defendants now objected to the liability claim raised against them in court by the insolvency administrator in 2014 based on the capital contribution which had not been finally paid in by the founding shareholder and on the settlement of the adverse balance. Following a successful action against the founding shareholder, the insolvency administrator initiated proceedings to forfeit his shares in 2014 and in the meantime sued the new shareholders for proportionate default liability. The proceedings to forfeit the shares were concluded in the course of the first instance proceedings in 2014. Up until the decision of the BGH, the founding shareholder – who had moved to Spain in the meantime – did not effect any payment on “his” outstanding contribution debt or on the adverse balance. The defendants denied having been shareholders of the GmbH in the period relevant for the liability and raised a plea of the statute of limitations.

III. Decision of the BGH

The core of the legal dispute revolved around the question whether the two new shareholders, although they had only moved into the shareholder position after the claims that later led to the proceedings to forfeit the shares had fallen due, were liable as “other shareholders” within the meaning of section 24 GmbHG.
The BGH clarified that it is irrelevant for default liability pursuant to section 24 GmbHG whether the shareholders requested for payment obtained their shareholder position before or after the due date of the company’s claims underlying the proceedings to forfeit the shares and based its decision in particular on the insofar unrestricted wording of section 24 GmbHG and the protective purpose of default liability. Section 24 GmbHG serves to secure the raising of capital and thus the protection of creditors. The provision is an expression of the “subsidiary joint responsibility” of all GmbH shareholders for raising the share capital. As a “claim of its own kind” of the company, it arises subject to the condition precedent that a co-shareholder fails to pay a due contribution or compensation claim of the company and only becomes unconditioned and due when the further conditions (sections 21-23 GmbHG) are met. It applies to all shareholders who are a member of the company at the time the claims in question are due or who become a member later on until the amount in arrears has been paid in full.
The fact that in this case the new shareholders acquired their shares from the previous sole shareholder, for whom as such default liability pursuant to section 24 GmbHG could not exist, does not alter their obligation under section 24 GmbHG. The splitting of the share of the sole shareholder gives rise to default liability regarding each of the shares thereby created in respect of the due claims related to the remaining new shares.
The fact that the list of shareholders had not been updated after the acquisition of the shares does not preclude the recourse against the two defendants as “other shareholders” according to the decision of the BGH. At the time of the acquisition of their shares in 2005, it was sufficient for the acquirers that the Company had been duly notified of their acquisition – as was the case – in order to qualify as “other shareholders” pursuant to section 16 para. 1 GmbHG (old version). The BGH did not have to assess the question conclusively that is controversially raised by literature as to whether a list of shareholders submitted before the German Accounting Law Modernization Act [Bilanzrechtsmodernisierungsgesetz] (01.11.2008) and not updated since (so-called “old list”) has legitimizing effect pursuant to section 16 para. 1 GmbHG new version. Indeed the application of the new provisions resulted in the defendants no longer being regarded as shareholders of the GmbH from 1 November 2008 on due to of the missing entry in the list of shareholders. This circumstance, however, did not alter their responsibility under section 24 GmbHG, because they could no longer evade their liability which had already arisen in 2005 as a result of a condition precedent.
Once a default liability has arisen, even though it is subject to a condition precedent, it also affects a shareholder as an intermediate acquirer if he, at the time of the occurrence of the additional conditions of the default liability, namely at the time the proceeding to forfeit the shares is commenced, has transferred his share (onward) and/or no longer is shareholder of the GmbH himself. With the same reasoning, the BGH also rejected exemption from liability of the new shareholder who declared his purchase void and revoked his notification as shareholder. Also an effective rescission of the purchase of shares in 2005 or an effective revocation of the notification of his shareholder position only eliminated the shareholder position of the new shareholder with effect for the future (“ex nunc”), with the result that even in this case the new shareholder – as intermediate acquirer – cannot avoid liability under section 24 GmbHG.
With regard to the question whether the new shareholders could successfully invoke the plea of the statute of limitation, the BGH decided, contrary to the prevailing view in literature, that the ten-year special limitation period for the contribution payment (section 19 para. 6 GmbHG) does not apply by analogy to default liability pursuant to section 24 GmbHG, but “only” the three-year regular limitation period (sections 199, 195 BGB), but stated that the limitation period had not yet expired in the present case. The statute of limitations for claims subject to a condition precedent pursuant to section 24 GmbHG only begins with the occurrence of all its conditions precedent. In the case at hand, the statute of limitations for the claim against the new shareholders therefore was already suspended at the relevant time (commencement of the proceedings to forfeit the shares) by filing the action.
Although the BGH affirmed that the defendants are liable in principle, it referred the lawsuit back to the Court of Appeal. It is now (only) incumbent on the latter to sufficiently clarify whether the insolvency administrator should have tried to demand payment from the founding shareholder first – if necessary by enforcement abroad – before holding the new shareholders accountable.

IV. Consequences for the Practice

With its decision on 18 September 2018, the BGH considerably extended the default liability of the “other shareholders”: this liability in favor of the company arises at the earliest conceivable time, i.e. when the contribution debt of the co-shareholder becomes due. It applies to the widest circle of shareholders possible, including shareholders who acquired their shares only after the due date of the contribution claim or (mere) interim acquirers, and only expires when the outstanding amount has been paid in full. The limitation period of (only) three years also provides little planning security, since it only begins when all other conditions precedent have been met, i.e. after unsuccessfully claiming payment from the forfeited shareholder, his legal predecessors and unsuccessful attempts of realization of his shares. In extreme cases, there is thus the risk that even an (interim) purchaser of a (minority) shareholding (long) after leaving the GmbH will be responsible for raising the entire share capital and offsetting an adverse balance.
Against the background of this BGH decision, every purchaser of a GmbH share is urgently advised to have the compliance with the legally mandatory regulations on the raising and preserving of share capital in the target company examined in detail in order to obtain clarity as to whether outstanding contribution claims exist. On the one hand, guarantees of the seller with regard to the proper payment and continuous preservation of the share capital belong as a standard clause in every purchase agreement for GmbH shares. On the other hand, the economic value of such guarantees depends heavily on the financial standing of the seller. If he is (perhaps at a later date) not solvent, the guarantees become null and void. Therefore, they cannot replace a thorough (legal) due diligence prior to the acquisition of a share. Only through a precise analysis of the circumstances of the individual case, the liability risks remaining with the purchaser can be assessed correctly and their realization prevented. On the basis of the specific circumstances of the individual case, this can be done, e.g. by additionally securing the purchaser’s guarantee claims and by coordinating the commencement of the limitation period for these claims with the legally mandatory requirements to be adhered to pursuant to section 24 GmbHG.