shareholders' resolution

A recent Privy Council decision examines the extent to which formal shareholder resolutions may be bypassed by relying on the Duomatic principle.

By Daniel Smith and Alanna Andrew

The ability for shareholders to pass resolutions — or assent to a course of action — quickly and informally is a potentially useful tool at any time, and even more so in times of financial and business uncertainty. Shareholders may wish to ensure time-pressured deals or restructurings are completed at speed. Companies may face liquidity challenges or expiring business opportunities, which require shareholder resolution. For creditors or bondholders, there may be an incentive to move swiftly, for example, if a receiver (who is appointed pursuant to the terms of a debenture and empowered to exercise the company’s voting rights) wishes to amend Articles of Association in order to effect a contentious restructuring.

While a shareholders’ resolution is still required, the FCJ left open the question of whether notarization of the resolution is necessary.

By Christian Thiele and Otto von Gruben

The German Federal Court of Justice (FCJ) decided on 8 January 2019 that Section 179a (1) of the German Stock Corporation Act (AktG) does not apply mutatis mutandis to a German GmbH (II ZR 364/18). The decision contradicts the prevailing view in legal literature so far, pursuant to which a notarized shareholders’ resolution approving the sale and transfer of all or substantially all assets of a GmbH was required.

Background

Section 179a (1) AktG provides that an agreement, pursuant to which a German stock corporation undertakes to transfer all of its assets requires an approving shareholders’ resolution. If a respective agreement is executed without such resolution, it remains provisionally invalid until it is approved by way of a shareholders’ resolution in accordance with Section 179a (1) AktG. If the shareholders refuse to approve such agreement, it becomes permanently void.