GERMANY | CORPORATE | Simplified Adoption of Resolutions for German Limited Liability Companies
On 27 March 2020, the legislator adopted the Gesetz zur Abmilderung der Folgen der COVID-19-Pandemie im Zivil-, Insolvenz- und Strafverfahrensrecht (Act to Mitigate the Consequences of the COVID-19 Pandemic under Civil, Insolvency and Criminal Procedure Law, “Act on Mitigating Measures”) which came into force just one day after its promulgation. The Act aims at facilitating the passing of resolutions of German limited liability companies (GmbH) and stock corporations (AG) in order to mitigate the consequences of the COVID-19 pandemic for the population and the economy.
With regard to changes to the Act on Mitigating Measures applying to stock corporations, we refer to the BB blog post of our colleagues Dr. Winfried Richardt and Oliver Köster.
1. Legal situation prior to the crisis
Pursuant to section 48 para 1 German Limited Liability Companies Act (Gesetz betreffend die Gesellschaften mit beschränkter Haftung, “GmbHG”), shareholders’ resolutions of a GmbH are generally adopted in the shareholders’ meeting. Pursuant to section 48 para 2 GmbHG, it is also possible to waive the shareholders’ meeting if all shareholders agree to the adoption of resolutions in text form or to a written vote.
The purpose of section 48 para 2 GmbHG is to ensure each shareholder’s right to participate in the adoption of resolutions. If your shareholders’ agreement does not provide for a different regulation in this respect and stipulates the passing of resolutions without a share-holders’ meeting in deviation from section 48 para 2 GmbHG, adopting resolutions in text form or with a written vote was previously not possible without the consent of all shareholders.
2. Difficulty with the former situation
Since we are all currently in “lockdown” in order to contain the COVID-19 pandemic, the protective function of section 48 para 2 GmbH effectively results in the situation that without the usual provision in the shareholders’ agreement deviating from section 48 para 2 GmbHG, the vote of an opposing shareholder against a resolution being passed by circulation can lead to the de facto inability of the company to act.
3. Changes due to the new legal situation
With the Act to Mitigate the Consequences of the COVID-19 Pandemic under Civil, Insolvency and Criminal Procedure Law, the legislator is trying to solve this problem. Article 2 section 2 of the Act on Mitigating Measures provides that:
“By way of derogation from section 48 para 2 of the Limited Liability Companies Act, shareholder resolutions may be taken, in text form or by submitting votes in writing, even without the consent of all the shareholders.” (Emphasis added by the author)
As a result, passing resolutions by circulation – even without the usual provision in the shareholders’ agreement – is currently permissible with the approval of a majority of the shareholders’ votes. The purpose of the new regulation is to contain the COVID-19 pandemic by means of limiting physical contact on the one hand. On the other hand, the company’s activities and the shareholders’ right to participate are protected insofar as it is no longer possible for a single shareholder to prevent a resolution being passed in text form or by a written vote.
It should be noted that the new regulation is, without exception, intended to facilitate the decision-making process. If you have included the wording of section 48 para 2 GmbHG in your shareholders’ agreement, this is merely a declaratory regulation which does not contain any regulatory content of its own that deviates from the intention of the legislator. Therefore, even in this case, it is no longer necessary for all shareholders to give their consent in order to pass a resolution by circulation.
4. Relevant period and duration of validity
Pursuant to Article 2 section 7 para 2, Article 2 section 2 of the Act on Mitigating Measures only applies to shareholders’ meetings and resolutions taking place in 2020. This means that, for the time being, the provisions will only apply as long as the legislator considers it necessary to contain the pandemic.
Pursuant to Article 6 para 2 of the Act on Mitigating Measures, the Act will cease to have effect on 31 December 2021.
Most modern shareholders’ agreements have long provided for the passing of resolutions without a shareholders’ meeting in derogation of section 48 para 2 GmbHG. If your shareholders’ agreement does not yet contain such a provision, the Act on Mitigating Measures offers a sensible temporary solution. In the long term, however, it is recommended to consider a provision in derogation of section 48 para 2 GmbHG.