Lawsuit, Lawsuit Admission Proceedings against Management Board, Supervisory Board in Germany
Assertion of Claims and Action for Damages by the Annual General Meeting and Shareholders
Art. 148 of the German Stock Corporation Act (AktG) allows minority shareholders in Germany to assert claims against the stock corporation independently and in their own name. In this way, shareholders can assert claims for damages against current and former members of the management board - irrespective of the body responsible in each case - and also enforce them in court. The same applies to claims by the stock corporation against current or former members of the supervisory board.
Allowing shareholders to take legal action is contrary to the structure of competences under german stock corporation law. For this reason, the legislator in Germany has provided for a two-stage procedure with high hurdles for shareholders to assert claims in their own name.
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Legal Expertise in the Area of Lawsuit Admission Proceedings in Germany
Our highly qualified and specialized team of attorneys and specialists in corporate law at our offices in Hamburg, Berlin, Munich, Frankfurt and Cologne will advise you on all issues relating to the admission of claims procedure under german stock corporation law. Members of our team are also academically involved in the subject of lawsuit admissions proceedings, so that we have special know-how in this area.
The range of advice provided by our stock corporation lawyers can be described as follows:
- Preparation of or defense against applications to the court for the admission of a lawsuit
- Support of stock corporations in the event of admission of a lawsuit pursuant to Section 148 AktG
- Assumption of lawsuits in the case of admission of a lawsuit
- Strategic advice to members of the management board and supervisory board in the event of the admission of a lawsuit, defense against liability suits
The admissibility of a lawsuit in Germany is a building block in the system of shareholders' rights concerning the enforcement of claims of the german stock corporation against members of the management board and supervisory board. While the special audit pursuant to Art. 142 AktG serves to independently clarify and uncover any breaches of duty by an independent special auditor, the appointment of a special representative pursuant to Art. 147 AktG and the action admissibility procedure pursuant to Art. 148 AktG are aimed at the direct assertion of liability claims.
The assertion of claims under the admissibility procedure is divided into two stages. The first stage is the admission of the action in a special procedure. The second stage is the actual assertion of the claims in question in court.
Application by a minority of Stockholders for Admission of the Action in Germany
The application for admission of an action against members of the management board and/or supervisory board may be filed by shareholders whose shares together amount to 1% of the capital stock or a proportionate amount of 100,000 EUR of the capital stock.
However, shareholders may only file the application if they acquired the relevant shares prior to the time when the relevant breaches of duty by the members of the management board and supervisory board became known.
Inaction by the Administration - Futile Request to File a Lawsuit
Subsidiarity of the right to bring an action in Germany is subject to the condition that the shareholders seeking the right to bring an action have unsuccessfully requested the management of the stock corporation to assert the relevant claims for damages.
Depending on whether the claims are directed against members of the management board or members of the supervisory board, the shareholders must send their request to the respective other body.
Breach of duty - Dishonesty and gross violation of the german law or the Articles of Association
According to the clear wording of the german law, the court will only grant the application for admission of the claim if there are facts justifying the suspicion that the company has suffered damage as a result of dishonesty or gross violation of the law or the articles of association by members of the management board and/or supervisory board.
In german practice, it is usually questionable which facts the petitioning minority shareholders must present to the court and in what way they must actually prove them. This is where the connection with the special audit under stock corporation law pursuant to Art. 142 AktG becomes apparent. The special audit is intended to provide the basis for a subsequent lawsuit or admission of a lawsuit by clarifying the breaches of duty.
No overriding reasons of Corporate Welfare
A further hurdle for the petitioning minority shareholders in Germany is that there must be no overriding reasons in the best interests of the german company to oppose the assertion of claims for damages.
This is another area where the german courts are often uncertain in german practice as to which criteria should be included in the balancing of interests - on the one hand the interest of the applicants (the stock corporation) in pursuing the claims for damages in question, and on the other hand the interest of the german stock corporation in avoiding "nonsensical" lawsuits. If the admissibility procedure is to have any effect at all, overriding reasons of corporate welfare should probably only be assumed in exceptional cases.
Rights of the german AG in the context of Admission of Action and Lawsuit
The admissibility of action procedure has a number of special features under procedural law in Germany.
For example, during the admissions procedure (and also during any subsequent legal action), the german stock corporation has the right to bring its own ("new") action for damages against the members of the management board/supervisory board concerned. In the event that the stock corporation does so, the "other" action shall become inadmissible.
However, the AG can itself take over a lawsuit which is pending - after the lawsuit has been admitted - and in this way also displace the shareholders filing the suit from the "driver's seat".