GRP Rainer Rechtsanwälte – Assessment of removing a shareholder-managing director for good cause

It is possible to remove a shareholder-managing director from their post if there is good cause justifying this action, but good cause must be present at the time of the resolution“s adoption.

The general meeting of the shareholders is the main decision-making body of a GmbH, a type of German private limited liability company. It is normally responsible for deciding whether a shareholder-managing director is removed from their post as well as whether their employment contract is terminated. However, the shareholder-managing director is also personally entitled to vote, which means that he or she might potentially be able to thwart a resolution to remove them from their post. Notwithstanding this, the shareholder-managing director is not allowed to exercise their voting rights if their removal is being proposed based on good cause. We at the commercial law firm GRP Rainer Rechtsanwälte note that the assessment of whether there is in fact good cause justifying removal is therefore the decisive factor.

In practice, it has frequently been a controversial point of discussion whether it is sufficient for removal to formally take place on the basis of good cause or whether good cause requires objective and transparent underlying proof. In a judgment from 4 April 2017, the Bundesgerichtshof (BGH), Germany“s Federal Supreme Court, provided clarity (Az.: II ZR 77/16). The Court held that for the purposes of courts reviewing the validity of shareholder resolutions concerned with the removal of a GmbH shareholder-managing director or termination of their employment contract, it comes down to whether or not good cause was in fact present at the time of the resolution“s adoption. It went on to state that in the context of a legal dispute, the requirement to demonstrate and provide evidence of good cause must be met by the party whose claim relies on its existence.

In the case in question, there were differences of opinion among the shareholders of a GmbH. The general meeting of the shareholders was supposed to vote on the removal of the shareholder-managing director. However, the shareholder-managing director owned 51 per cent of the voting shares, and the attempt to remove him failed as a result.

The BGH ruled that the shareholder-managing director had been allowed to exercise his right to vote because the good cause justifying his removal and termination of his employment contract was not objectively present at the time of the resolution“s adoption. The Court noted that there is good cause if it would no longer be reasonable to expect the company to continue employing the managing director, in particular due to gross dereliction of his duties.

Disputes among shareholders are common. Lawyers who are experienced in the field of company law can advise shareholders and managing directors.

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GRP Rainer LLP www.grprainer.com/en/ is an international firm of lawyers and tax advisors who are specialists in commercial law. The firm counsels commercial and industrial companies and corporations, as well as associations, small- and mid-sized businesses, self-employed freelancers and private individuals worldwide from offices Cologne, Berlin, Bonn, Dusseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London UK.

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