Challenging Shareholder Resolutions

Challenging shareholder resolutions: the basic framework

Challenging shareholder resolutions in Germany follows a two-track system. Defects that the legislator considers grave make a resolution void (nichtig) from the outset; all other breaches of law or the articles make it merely voidable (anfechtbar), so it stays valid unless a court annuls it on an action brought in time. For the stock corporation (Aktiengesellschaft, AG), the rules are codified in §§ 241–249 of the Stock Corporation Act (Aktiengesetz, AktG). For the GmbH there are no equivalent express provisions; the courts apply the AktG rules by analogy, with adjustments for the closer shareholder structure.

The one-month deadline for an action for annulment in the AG is the most important point to remember.

Disputes about challenging shareholder resolutions arise in family companies, private equity portfolio companies and listed groups alike: contested capital increases, appointments and dismissals of managing directors, approval of accounts and dividends, domination agreements, mergers and squeeze-outs. For the company, a pending action can block registration of structural measures; for the challenging shareholder, it is often the main lever to protect its position. Our corporate governance page covers the governance background.

Void resolutions and voidable resolutions

Nullity

A resolution of the general meeting is void only in the cases listed in § 241 AktG, including where the meeting was convened in breach of key notice requirements, the resolution was not properly recorded by a notary where required, its content is incompatible with the nature of the AG or violates provisions protecting creditors or the public interest, or it is contrary to public policy.

Nullity can be asserted by anyone and at any time, including in an action for a declaration of nullity (§ 249). However, certain nullity grounds can no longer be relied on once the resolution has been entered in the commercial register and three years have passed (§ 242(2)).

Voidability

All other violations of the law or the articles of association make a resolution voidable (§ 243(1) AktG). Typical grounds are procedural errors at the meeting, breaches of information rights, abuse of majority power and resolutions pursuing special advantages to the detriment of the company or other shareholders (§ 243(2)). The legislator has limited certain grounds. Information breaches justify annulment only if an objectively judging shareholder would have regarded the information as essential for exercising participation and membership rights (§ 243(4)). Technical failures in electronic participation and virtual meetings justify a challenge only where the company acted with gross negligence or intent (§ 243(3)).

Who can sue and the one-month deadline

Standing to challenge is defined in § 245 AktG. A shareholder who attended the meeting may sue if it acquired its shares before the agenda was published and declared an objection to the resolution for the minutes. Shareholders who did not attend may sue if they were wrongly refused admission or if the meeting or the agenda item was not properly convened or announced. The management board, and individual board members in specific circumstances, also have standing. In a virtual general meeting, all shareholders connected electronically count as present.

The action for annulment must be brought within one month after the resolution was adopted (§ 246(1) AktG). This is a substantive cut-off period: the grounds of challenge must be set out in substance within that month, and later additions of new grounds are generally excluded. The action is directed against the company, represented by both the management board and the supervisory board, and must be filed at the regional court (Landgericht) where the company has its seat; a chamber for commercial matters decides if one exists (§ 246(2), (3)). Several actions against the same resolution are joined.

Challenging shareholder resolutions in the GmbH

In the GmbH, shareholder resolutions are typically adopted in meetings or in writing, and the chair often formally determines the result. Where the result has been determined, it is binding until annulled by an action against the company. Where no formal determination is made, a shareholder may instead seek a declaratory judgment on what was resolved. The courts apply the AktG grounds for nullity and voidability by analogy and require actions to be brought within a reasonable period; the one-month period of § 246(1) AktG serves as the benchmark, and articles of association may provide for a deadline, which may not be shorter than one month.

Because GmbH shareholders often hold larger stakes and personal relationships are closer, disputes over resolutions frequently overlap with disputes over exclusion, withdrawal, managing directors' dismissal and information rights. See our insights on GmbH shareholder meetings and resolutions and on shareholder disputes in the GmbH.

Release proceedings and structural measures

An action against a resolution on a capital measure, a capital reduction, an enterprise agreement such as a domination agreement, or certain amendments to the articles can prevent the commercial register from registering the measure. To overcome this blockade, the company may apply for release proceedings (Freigabeverfahren) under § 246a AktG. A senate of the Higher Regional Court (Oberlandesgericht, OLG) at the company's seat decides at a single instance. Release is granted if:

1. the action is inadmissible or obviously unfounded;
2. the claimant fails to prove within one week of service of the application that it has held shares with a pro rata amount of at least EUR 1,000 since the meeting was convened; or
3. the interest in prompt effectiveness prevails because the substantial disadvantages for the company and its shareholders outweigh the disadvantages for the claimant, unless the breach is particularly serious.

The decision is unappealable, binds the register court and should be made within three months of the application (§ 246a(3)). Comparable release proceedings exist for mergers and other transformations (§ 16(3) of the Transformation Act, Umwandlungsgesetz, UmwG). If the action later succeeds, the claimant is limited to damages; the registered measure stands.

Valuation disputes go to appraisal proceedings

Where shareholders object only to the adequacy of a cash compensation or exchange ratio, the law channels the dispute into appraisal proceedings (Spruchverfahren) rather than an action for annulment. For mergers, an action cannot be based on the claim that the exchange ratio is inadequate (§ 14(2) UmwG). This separation protects transactions from valuation-based blocking while still giving shareholders a judicial review of the price. See our insight on squeeze-outs of minority shareholders.

Interim relief and costs when challenging shareholder resolutions

Annulment proceedings take time, and a resolution remains effective while they run. Where implementing a resolution would cause irreversible harm, a shareholder can apply for a preliminary injunction (einstweilige Verfügung), for example to stop the registration or execution of a measure, or to prevent a newly appointed managing director from acting. German courts are cautious with such orders because they anticipate the result of the main action; applicants must show both a clear claim and urgency. In the GmbH, interim relief is more common, especially in two-shareholder deadlocks over dismissals of managing directors. Our insight on interim injunctions in German courts explains the requirements.

Costs depend on the value in dispute, which the court sets at its discretion, taking into account the importance of the matter for the parties; in the AG it may exceed one tenth of the share capital, or EUR 500,000 where that tenth would be higher, only insofar as the matter is of greater importance to the claimant (§ 247(1) AktG). A party whose economic position would be seriously endangered can apply for a reduced value for its own cost liability (§ 247(2)).

Shareholders challenging shareholder resolutions of a large AG therefore face a calculable but not negligible cost risk. Companies, in turn, should budget for the cost of release proceedings and for the delay in implementing contested measures when they plan a transaction timetable around a general meeting.

Abusive actions and settlements

For decades, German listed companies faced "predatory shareholders" (räuberische Aktionäre) who bought a few shares, challenged structural resolutions and offered to withdraw in return for payments. Legislative responses include the release procedure with its EUR 1,000 threshold, the requirement that the claimant held shares before the agenda was published, and transparency: listed companies must publish the termination of an annulment action without delay in the company's journals, together with any agreements and payments connected with it (§ 248a, § 149(2), (3) AktG). Courts have long held that an action brought with the aim of extracting an unjustified special benefit can be an abuse of rights and is unfounded.

Companies negotiating a settlement should assume that it will become public and that any payment beyond a reimbursement of legitimate costs will be scrutinised. Settlements that benefit the claiming shareholder alone can raise issues under the equal treatment principle and the prohibition of returning contributions.

Practical checklist for companies and shareholders

For companies preparing a contested general meeting:

• review the invitation, agenda and information documents against the statutory requirements, since convening errors can lead to nullity;
• prepare for questions so that information rights are fulfilled and refusals are justified and minuted;
• ensure the notary and the chair record objections and voting results correctly;
• plan for release proceedings early for capital measures and enterprise agreements.

For shareholders considering challenging shareholder resolutions, the essentials are:

• declare your objection for the minutes at the meeting;
• collect evidence of procedural defects immediately, including the minutes and the notary's record;
• file the action with all grounds within one month and consider interim relief in urgent GmbH cases;
• weigh whether appraisal proceedings or a damages claim is the more effective route.

How TRW & Co helps with challenging shareholder resolutions

We act for companies, boards and shareholders in disputes over resolutions of AGs, SEs, GmbHs and partnerships. For companies, we prepare general and shareholder meetings to reduce challenge risks, defend actions for annulment and nullity, and run release proceedings at the Higher Regional Courts. For shareholders, we assess grounds and deadlines, file actions and interim applications, and negotiate exits or settlements. We coordinate with notaries on proper recording and with the commercial register on registration issues. Where valuation is the real issue, we represent clients in appraisal proceedings. To discuss a contested resolution, please contact us.