I. Section 179a AktG concerning a stock corporations

According to section 179a paragraph 1 sentence 1 AktG, the transfer of all company assets of a stock corporation requires the approval of the general meeting. In this context, the approving resolution of the general meeting which requires notarial certification constitutes the prerequisite for effectiveness of the transfer agreement under the law of obligations. The otherwise unrestricted power of representation of the managing board does not include the conclusion of such an agreement. If the approving resolution of the general meeting is missing, the transaction imposing a legal obligation underlying the transfer pursuant to section 177 German Civil Code [BGB] is provisionally ineffective. If the general meeting finally refuses to grant approval, the transaction under the law of obligations is ineffective.

II. Analogous application to a GmbH?

Pursuant to the previous prevailing view, section 179a AktG should apply mutatis mutandis to a GmbH. However, the BGH now rejects such an analogous application of section 179a AktG to a GmbH.
It explains that section 179a paragraph 1 sentence 1 AktG constitutes an exceptional provision, because the provision restricts the general principle applicable pursuant to corporate law that the power of representation of a managing director cannot be restricted regarding the relation to third parties. The unrestricted and unrestrictable organ power of representation is, however, a guiding principle of the right of companies according to BGH. It is unacceptable for a third party who does business with an organ representative to determine in each individual case, whether the representative was acting with the necessary organ power of representation. Therefore, commerce should be guided by the principle that there is no need for investigations regarding the scope of the organ power of representation.
According to BGH, this principle is only restricted regarding stock corporations, because the Stock Corporation Act contains clear allocations and delimitations regarding the performance of management and supervisory duties in the company within the sections 76 et seq. and 111 et seq. AktG and the stockholders are largely excluded from the management and supervisory. The BGH finds that the provisions under section 179a AktG thus compensate the lack of a possibility to exercise any influence by a stockholder.
In contrast, the shareholders’ meeting of a GmbH is, however, the central decision-making body of a GmbH according to BGH. This is because significant decisions are made for the abilities of the company by the shareholders’ meeting.
Consequently, a GmbH shareholder is not equally in need of protection as a stockholder. Thus, there are no comparable interests – necessary for the analogy – so that the guiding principle of the unrestricted and unrestrictable organ power of representation vis-à-vis the GmbH shareholder continues to apply.

III. Management of a GmbH

However, the BGH deals with the case concerning the transfer of all assets sets of a company. It points out that a transfer of all company assets requires the approval of the shareholders’ meeting even without an analogous application of section 179a AktG. The BGH emphasizes that a managing director of a GmbH – in contrast to the managing board of a stock corporation – is only entitled to management authority pursuant to section 37 paragraph 1 Limited Liability Companies Act [GmbHG] to the extent that the shareholders’ meeting has not made use of its management competence either by the provisions in the articles of association or by resolutions instructingthe managing director how to act. This also means that in the case of particularly important transactions – such as the transfer of the entire assets of the company – the managing director must first obtain the approval of the shareholders’ meeting. This is the only way to protect the right of control of the shareholders’ meeting, in particular of a minority shareholder, adequately. The BGH therefore locates the requirement for an approving shareholders’ resolution initially in the internal relationship between the shareholders’ meeting and the managing director.

IV. Necessary majority requirements

In its decision, the BGH makes no statement about the majority required for the approving resolution. In our opinion, there are strong arguments for continuing to demand a ¾ majority. As a general rule, a GmbH loses its character as a commercial company through the transfer of the entire company assets. The sale of the company will only in exceptional cases be covered by the corporate purpose. In this respect, the resolution in question is in general a resolution with permanent effect. For such resolutions, case law and legal literature predominantly require that the requirements of section 53 GmbHG are met (for further details see also the article on resolutions with permanent effect in this newsletter). Section 53 paragraph 2 sentence 1, 2nd half of sentence requires a ¾majority of the votes cast. In addition, the predominant view in the legal literature applies section 53 GmbHG (analogously) also to so-called “Holzmüller” cases. The sale of all company assets is an even greater intervention than in the cases of “Holzmüller”, where in most cases very substantial structural changes were involved. Also against this background, a ¾ majority based on section 53 paragraph 2 sentence 1 GmbHG (analogously) will continue to be required.

V. Abuse of power of representation

But what happens if – as in the case in question – the managing director does not obtain the approval of the shareholders’ meeting? According to the BGH, the business partner’s trust in the continued existence of the business is not worthy of protection if he knows or it must have been obvious to him that the managing director is abusing his power of representation. The BGH is therefore referring to the principles of the abuse of the power of representation.
In such a case, the declaration of intent submitted by the managing director is invalid. The contracting party cannot derive any contractual rights or objections from the transaction formally covered by the power of representation of the managing director. In this particular case, the BGH softens and extends the principles of abuse of power of representation: It should not be necessary that the managing director and the contracting party act together to the detriment of the company or that the company suffers any disadvantage from the transaction. The BGH further states that it must be clear to a reasonable contractual partner that a managing director of a GmbH may not dispose of the whole assets of a company without the consent of the shareholders’ meeting. In such a case, the business partner would be obliged to a duty of investigation.

VI. Options for action of the shareholders’ meeting and individual shareholders

Since the bad faith of the contractual partner leads to the invalidity of the legal transaction in relation to third parties, it gives individual shareholders the opportunity to influence the sales process. A shareholder – also a minority shareholder – can destroy the confidence of the contractual partner in the unlimited power of representation of the managing director by informing this potential contractual partner that the shareholders’ resolution required for the transfer is missing.
In the opinion of the BGH, the principles set out above also apply during a liquidation of the company.

VII. Conclusion and recommendations for practice

Whether the BGH’s decision to reject an analogous application of section 179a AktG to the GmbH is convincing does not require any further discussion at this point. However, the decision is important for advising clients on this matter: As a result of the increased obligation to carry out investigations imposed by the BGH, as a general rule (i) the seller has to continue to obtain an approving resolution and (ii) the buyer has to have this resolution presented to him.
So there are not any changes in relation to the previous practice regarding this subject? Not exactly: In its statements, the BGH makes it clear that the formal requirements of section 179a paragraph 2 AktG (displaying and transmitting the relevant documents prior to passing a resolution) do not apply to the GmbH. First statements of the legal literature on this subject also suggest that, unlike in the past, the approving resolution does not have to be notarized any more. As described under Section IV above, section 53 paragraph 2 sentence 1 GmbHG is generally to be applied to approving resolutions. Therefore a notarized approving resolution should continue to be obtained for reasons of precaution.