Case law denies the Possibility of Objection by a GmbH shareholder affected by a Redemption

News from the GmbH Shareholder List

The compulsory redemption of GmbH shares by shareholder resolution has drastic consequences: Provided it is effective, it leads to the immediate elimination of the shares and the immediate loss of the membership rights and obligations of the shareholder concerned. The law and jurisdiction set high requirements for a compulsory redemption. In particular, the compulsory redemption and its conditions must have been precisely agreed between the shareholders in the articles of association of the GmbH. The consequences of the redemption are nevertheless remarkable, as the shareholder concerned cannot instantly defend himself against the fact that his shareholding is regarded as no longer existing from one moment to the next. If the other shareholders cite an important reason for the redemption, he does not even have the right to vote on the resolution to redeem his shares.

As part of a redemption, the shares of the remaining shareholders are often "topped up" by the amount of the redeemed shares. The company must then record the entire process in a new shareholder list and submit it to the commercial register. This is precisely where a new ruling by the Berlin Court of Appeal (Kammergericht Berlin) comes into play: using a very technical legal argument, it denies the shareholder affected by a redemption, who considers the redemption to be unjustified, the opportunity to have an objection assigned to the list of shareholders in the commercial register (KG Berlin dated 28.6.2023, 23 U 41/23). But one thing at a time:

The list of shareholders is enormously important in GmbH law. With regard to the membership rights of the shareholders, only those who are entered in the list of shareholders are deemed to be shareholders. This applies even if the list of shareholders is incorrect, i.e. if the persons listed in the list of shareholders are not the true owners of the shares. Under certain circumstances, even such "unauthorized persons" can then effectively sell shares to third parties acting in good faith, so that the true owners lose their shares and have to rely on the not always promising assertion of claims for damages. The shareholder affected by a redemption also saw this risk in the decision of the Court of Appeal. This was because the new list of shareholders no longer showed his redeemed shares at all; instead, the list showed an increased participation of the other shareholders. The shareholder concerned considered the redemption to be unjustified and wanted an objection to be added to the list of shareholders in the commercial register. This was intended to make it impossible for the other shareholders to effectively sell their increased shareholding to third parties acting in good faith. He relied on Section 16 para. 3 sentence 4 GmbHG, which opens up the general possibility of such an objection.

The Court of Appeal has now rejected the request, based on the following reasoning: Section 16 para. 3 sentence 4 GmbHG protects the true owner of a share from a third party effectively acquiring his share in good faith from someone who is incorrectly shown as the shareholder in the list of shareholders. In the case of redemption, however, the share is not shown in the list of shareholders at all, so there is no share that an unauthorized person could effectively sell. Section 16 para. 3 sentence 4 GmbHG does not apply to this case and a contradiction to the list of shareholders is therefore not permissible.

Assessment

At first glance, the judgment of the Court of Appeal appears to contain contradictory evaluations: The person whose share is wrongly allocated to someone else in the list of shareholders can obtain an objection to the shareholder list. The person who has wrongly "lost" his share due to redemption cannot.

In the application of the law, however, the judgment of the Court of Appeal is consistent in itself: Section 16 para. 3 sentence 4 GmbHG actually systematically only refers to shares that are still shown in the list of shareholders, even if with the incorrect owner. Section 16 para. 3 sentence 4 GmbHG - at least when interpreted narrowly - does not cover cases in which shares no longer appear in the shareholder list due to redemption. In its decision, the Court of Appeal emphasizes very revealingly that an acquisition in good faith would not even be possible in the redemption cases: If the redemption was invalid, the increased shareholdings of the other shareholders could not be effectively acquired in good faith, as the law only protects the good faith in the ownership of the shares, but not in the amount of the share value. It remains to be seen whether other courts will follow this view.

The shareholder affected by a compulsory redemption is nevertheless disappointed by the ruling in his interest in pointing out what he considers to be an incorrect list of shareholders by means of an objection. Following the ruling of the Court of Appeal, the only thing left for him to do to prevent this is to react quickly: he can obtain interim legal protection against the company to prohibit a new list of shareholders in which he no longer appears from being submitted at all to the commercial register.