Corporate
Newsletter Issue #2 2016

Forfeiture of a share – request for payment by means of a registered letter (Einwurf‐Einschreiben)

Federal German Supreme Court, ruling handed down on 27 September 2016 – file no. II ZR 299/15

The Federal German Supreme Court had to preside over the issue as to whether forfeiture under § 21, sections 2 and 3 of the German Limited Liability Companies Act (GmbHG) could be invalid because the renewed request for payment of the contribution on the capital stock of the company was declared using a registered letter placed in a post box without signature for acknowledgement of receipt ("Einwurf‐Einschreiben") instead of a registered letter being served upon signature for acknowledgement of receipt ("Übergabe‐Einschreiben").

In an Einwurf‐Einschreiben of Deutsche Post AG, the plaintiff called upon the defendant to pay in an amount that had not been paid into the capital stock of the plaintiff. The plaintiff had announced that in the event that the amount was not paid by the deadline, which it also set in the letter, in accordance with § 21, section 1, subsection 1 of GmbHG, the shareholder would be excluded from the company. The defendant did not pay the sum, whereupon the share of the defendant was forfeited.

In the opinion of the Federal Supreme Court, sending the renewed demand for payment to be effected in the meaning of § 21, section 1, subsection 1 of GmbHG by means of an Einwurf‐Einschreiben of Deutsche Post AG meets the formal requirements laid down in § 21, section 1, subsection 2 of GmbHG.

The Federal Supreme Court thus decided that the Einwurf‐Einschreiben launched by Deutsche Post AG in 1997 also constitutes a "registered letter" in the meaning of § 21, section 1, subsection 2 of GmbHG. As grounds, the Federal Supreme Court stated in textbook fashion: (i) The language of § 21, section 1, subsection 2 of GmbHG does not suggest that any distinction is to be made between the two types of registered letters. (ii) Furthermore, the historical will and intent of lawmakers does not suggest the Einwurf‐Einschreiben should be excluded as an allowed form of transmission in the meaning of § 21, section 1, subsection 1 of GmbHG. This all the more because lawmakers have not taken any action since the launch of the Einwurf‐Einschreiben in spite of controversial debate. (iii) Finally, a teleological interpretation also leads to the conclusion in an overall consideration of the advantages and disadvantages of the two types of shipment that an Einwurf‐Einschreiben is at least of equivalent value to the Übergabe‐Einschreiben with regard to the meaning and purpose of the statute laid down in § 21, section 1, subsection 2 of GmbHG, namely in terms of ensuring receipt and evidence of such.

In this decision, the Federal Supreme Court has handed down a decision in the legal dispute over whether a new demand for payment of the contribution to be effected can be performed by means of an Einwurf‐Einschreiben affirming that this is indeed the case, hence establishing greater legal security in the field of practice. The Federal Supreme Court did not decide on the issue of whether an Einwurf‐Einschreiben from a letter service provider other than Deutsche Post AG may also meet the demands of § 21, section 1, subsection 2 of GmbHG, however. For this reason, it will be necessary to continue to monitor developments in the area of case law.

Rechtsanwalt Eugen Kunz

Power of representation by the general partner in a limited partnership in which the company holds all the shares in the general partner (so‐called "Einheitskommanditgesellschaft")

Celle Superior Regional Court, decision handed down on 6 July 2016 – 9 W 93/16

Celle Superior Regional Court presided over the issue of the powers of representation of the personally liable partner (general partner) in a limited partnership in which the company (KG) holds all the shares in the general partner (so‐called "Einheitskommanditgesellschaft"). Such a company is a GmbH & Co. KG, in which the KG is the sole shareholder in the general partner, i.e. the GmbH. The general partner GmbH is thus hence the personally liable partner of the KG and at the same time its subsidiary as well.

In the case at hand, a Shareholders' Meeting of the general partner GmbH was held and an amendment of the company articles resolved. Because the only partner in the GmbH is the KG, this raises the question as to who represents the KG (the limited partners or the managing general partner) at the Shareholders' Meeting of the general partner GmbH.

Citing existing case law handed down by the Federal Supreme Court, Celle Superior Regional Court has established that with an "Einheitskommanditgesellschaft" the management of the limited partnership (KG), i.e. the GmbH itself, is to exercise the rights of such limited partnership in its capacity as sole shareholders at the Shareholders'' Meeting of the GmbH. Representation by the limited partners in their entirety, which was affirmed by the previous court instance, is not possible, according to the court, because it is not in harmony with the exclusion of the limited partners from representation of the limited partnership laid down in § 170 of the German Civil Code. If the statutes of the limited partnership stipulate a special arrangement for the exercise of partners' rights in the general partner GmbH, according to the Superior Regional Court, something different would apply. This was so in the case under dispute: The statutes of the limited partnership stipulated that the limited partners were to be assigned the exercise of rights with regard to the shares in the general partner GmbH and the limited partners had further transferred these powers to an advisory board formed at the limited partnership. In the cas at hand, this advisory board was therefore in charge of adopting a resolution amending the statutes.

Although this case is merely a confirmation of case law already handed down by the Federal Supreme Court, it demonstrates once again, however, that arrangements relating to the exercise of shareholders' rights in the general partner GmbH may be expedient in the articles of incorporation of a limited partnership holding all the shares in the general partner. Generally speaking, there are three possibilities here.

First: No arrangements laid down in the limited partnership's articles of association mean that the managing directors of the general company GmbH can be "judges in their own case". As a result of the arrangements laid down in § 170 of the German Commercial Code, the limited partners are actually excluded from representing the limited partnership.

Second: the powers to exercise shareholders' rights in the general partner GmbH are transferred to the limited partners by means of an arrangement to this end in the statutes. This solution would probably be practicable for partnerships with a small number of limited partners. If the limited partnership has a large number of limited partners, however, the resolution would be considerably impeded as a result of the principle of unanimity applying with the limited partnership.

Third: as is frequently the case in actual practice, an additional governing institution made up of limited partners (an advisory board, for example) is established at the level of the limited partnership, which must exercise partnership rights with regard to the unlimited partner GmbH.

Rechtsanwältin Nina Linder

Request by the debtor to conclude an agreement to effect payment in instalments and the risks of a challenge under insolvency law

German Federal Supreme Court, ruling handed down on 16 April 2015 – IX ZR 6/14, German Federal Supreme Court, ruling handed down on 24 September 2015 – IX ZR 308/14, German Federal Supreme Court, ruling handed down on 21 January 2016 – IX ZR 32/14, German Federal Supreme Court, ruling handed down on 25 February 2016 – IX ZR 109/15, German Federal Supreme Court, ruling handed down on 9 June 2016 – IX ZR 174/15, German Federal Supreme Court, ruling handed down on 16 June 2016 – IX ZR 23/15, German Federal Supreme Court, ruling handed down on 14 July 2016 – IX ZR 188/15

In various current decisions, the German Federal German Supreme Court has spelled out its case law in detail on the issue of when the request by a debtor to conclude an agreement to effect payment in instalments can serve as an indication for a suspension of payment/illiquidity of the debtor or respective knowledge of the creditor. This assessment is of importance from the perspective of creditors especially because in this case the risk of a challenge under insolvency law (§§ 129 ff. of the German Insolvency Code (InsO)) increases and hence the insolvency administrator can be put in a position if the debtor later becomes insolvent to reclaim payments effected on the basis of an agreement to effect payment in instalments and subsequent payments from the creditor.

The German Federal Supreme Court is of the opinion that the request of a debtor to conclude an agreement on the payment of instalments does not constitute an indication of suspension of payments/illiquidity or respective knowledge of the creditor per se, at any rate as long as it stays within the framework of "customary practice in business" on the one hand and the debtor does not disclose any bottleneck in liquidity at the same time on the other, which can take place for instance by means of a notification that it is unable to meet its obligations that have become due (in any other manner).

Whether the conclusion of an agreement on payment in instalments is concluded within the framework of "customary practice in business" can only be assessed on a case‐by‐case basis. In the opinion of the German Federal Supreme Court, these borderlines are regularly exceeded if the request for the conclusion of an agreement on payment in instalments is expressed under pressure of enforcement measures, threats of a cessation of supply and delivery or in the course of commitments to payments that are not followed up on or failure to respond to wide‐ranging admonishments over a period of months, or repayment can only be offered through a large number of instalments.

When concluding agreements on the payment of instalments with debtors "teetering in crisis", caution is accordingly warranted. If the debtor associates a request along these lines while issuing a declaration regarding its tense financial situation, or only requests conclusion of an agreement on the payment of instalments under considerable pressure, there is generally a high level of risk of a challenge under insolvency lawin the event of a subsequent insolvency of the debtor.

From the perspective of the field of practice, it is therefore advisable in the respective individual case to review whether the conclusion of an agreement to pay instalments would (still) make sense, or whether the business relationship should be ended in order to avoid subsequent risks of challenge.

Rechtsanwalt Matthias Flotmann