Germany: Analogous Application Of Section 179a German Companies Act (AktG) To Partnerships

Last Updated: 9 July 2018
Article by Jörg M. Lang

(OLG Düsseldorf, judgement of 23 November 2017 – I-6 U 225/16)

INTRODUCTION: The Düsseldorf Higher Regional Court had to decide on an action by a partner in a KG [German form of the limited partnership] which was directed against a resolution of the partners' meeting, in which it was resolved to sell a property which was the only investment property in the limited partnership's assets. In the view of the limited partnership, the sale was necessary to avoid insolvency. The resolution was passed with a relative majority, which, according to the requirements of the articles of association, was in principle sufficient for the partners' meeting resolution to be valid. Greater majorities are required for particular resolutions, but the case of the sale of the entire asset is not covered in the articles of association. In the plaintiff's view, the resolution would have required a 75% majority on the basis of Section 179a AktG.

The Higher Regional Court in principle accepted the analogous application of Section 179a AktG to limited partnerships. Due to the particularities of the individual case, however, the plaintiff was not able to successfully assert the invalidity of the resolution.

THE DECISION: In the case of stock corporations, Section 179a I 1 AktG requires a resolution of the general meeting for contracts in which they undertake to transfer the entire assets of the company; pursuant to Section 179 II 1 AktG the resolution must be passed by a 75% majority of the equity capital . Should this provision be analogously applicable to the limited partnership, the contract described above would require a 75% majority of the company shares because it involves the transfer of the entire assets. Since this is not the case, however, the resolution would be invalid.

The Federal Court of Justice (Bundesgerichtshof) ruled in 1995 (judgement of 9 January 1995 – II ZR 24/94) that Section 179a AktG expresses a principle based on the law as it applies to associations and is therefore also applicable in principle to partnerships like the limited partnership. It is however unclear whether it simply follows from the analogy that the partners' meeting must pass the resolution or whether the resolution must also be passed with a 75% majority.

The Düsseldorf Higher Regional Court follows the opinion of the Federal Court of Justice at least for cases in which the articles of association contain no explicit statements about the majority requirements for the transactions mentioned. The articles of association provide that the partners' meeting decides on all cases stipulated in statute and in the articles of association. However the articles do not explicitly provide how resolutions are to be adopted in the case of a transfer of the entire assets of the company.

The Higher Regional Court ruled here inter alia that it is the spirit and purpose of the law to protect the pecuniary interests of the partners. Since the partners of partnerships are just as worthy of protection, the general character of the law must also be reflected in the approval requirement with the appropriate quorum, which may not be reduced by the articles of association according to Section 197a I 2 German Civil Code (Bürgerliches Gestzbuch – BGB). Therefore, Section 179a AktG is analogously applicable to the limited partnership, at least in the present case. However, in the present case the Higher Regional Court declared the resolution was not invalid. This is because the limited partnership was in a serious crisis at the time of the resolution and the sale of the property was the only possibility to avert insolvency. In this particular situation, the plaintiff had the duty to agree to the sale on the basis of the fiduciary duties as partner. It follows from this duty that the plaintiff cannot assert a claim in respect of the technical invalidity of the resolution.

The appeal was therefore rejected for this reason. The Higher Regional Court finally had to clarify whether the resolution is void because it was not notarised. This is the case for stock corporations by reason of Section 130 I AktG for all resolutions of the shareholder meeting which require at least a 75% majority. However, there is no unintended omission of a provision for the analogous application of this provision to partnerships: A comparison with the GmbH (German form of small limited company), for which the analogous application of Section 179a AktG is also recognised, shows that there are, in principle, rules for other forms of company on this issue. Sections 161, 119 German Commercial Code (Handelsgesetzbuch – HGB) also contain no form requirements for resolutions by the partners' meeting.

An analogy with the provision in Section 130 I AktG as well as the notarisation requirement is therefore to be rejected.

IMPACT ON DAY-TO-DAY BUSINESS: Even through the Federal Court of Justice decided in 1995 that Section 179a AktG is a general principle which is also transferable to partnerships, the scope of this analogy is still unclear today. The Higher Regional Court's judgement makes it clear that the analogy not only extends to the resolution by the partners' meeting, but also to the majority requirements in the decision. This opinion is not widely shared in the literature, however, and it appears possible that the Federal Court of Justice will decide differently if it comes to deal with the subject.

The court's argumentation also raises questions about the fiduciary duty of the partners. Admittedly, a fiduciary duty of the partners is indeed to be welcomed, in particular in times of crisis, but it is questionable whether this can extend so far that the private autonomy of the partner is excluded in resolutions of the partners' meeting.

The statements on the need for form, on the other hand, appear sensible and well-grounded. Until the issue is finally clarified by the Federal Court of Justice, notarisation of the resolution is recommended by way of precaution. Should the Federal Court of Justice decide the same way as the Higher Regional Court, however, it could be possible to forego notarisation in the future.

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2018. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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