Unwritten general meeting responsibilities of German stock corporations in the M&A context

published on 27 March 2024 | reading time approx. 4 minutes

Usually, the management of German stock corporations (Aktiengesellschaften) is aware of the legal obstacles related to the sale of a subsidiary set out by the so called Holzmüller decision of the German Federal Court (Bundesgerichtshof; BGH). However, it is not widely known that there are also further constellations with regard to M&A transactions or intra-group measures that may require the approval of the general meeting (Hauptversammlung) of a German stock corporation.

In principle, the management board (Vorstand) of the stock corporation manages the stock corporation on its own responsibility as the center of decision-making and action. However, this allocation of powers may be limited if the German Stock Corporation Act or the company's articles of association (Satzung) assign responsibility or the duty to cooperate to the general meeting or the supervisory board (Aufsichtsrat). The involvement of the supervisory board is generally unproblematic. However, the need for the approval of the company's Annual General Meeting can be an organizational feat that often makes an M&A transaction or an intra-group measure seem unfeasible. The German Stock Corporation Act (Aktiengesetz – AktG) essentially contains three regulations that are relevant for the involvement of the general meeting in M&A transactions or intra-group measures:

Section 119 para. 2 AktG
Section 179 AktG; and
Section 179a AktG.

The regulations in sections 179 and 179a AktG are relatively clear.

Pursuant to section 179 para. 1 sentence 1 AktG, any amendment to the articles of association of a stock corporation requires the approval of the general meeting. One essential aspect of the articles of association is the company’s object. Therefore, in case of an M&A transaction or an intra-group measure, it has to be examined whether this action leads to the stock corporation no longer being able to carry out its object stated in its articles of association. In this case, such action would lead to the necessity to amend the articles of association, hence the approval of the general meeting has to be obtained.

Any agreement that obliges the company to transfer all of its assets requires the approval the general meeting pursuant to section 179a AktG. However, “all assets” does not mean all of the company’s assets in a literal sense. It is sufficient if the sale is so extensive that only immaterial assets remain, and the company can no longer pursue its previous object ac-cording to its articles of association.

In this context, it is important to note that German case law has developed unwritten responsibilities for the general meeting in addition to the two regulated cases by law. This obligation to involve the general meeting is often implied in section 119 para. 2 AktG. Section 119 para. 2 AktG stipulates that, apart from the cases listed in section 119 para. 1 sec-tion 119 para. 2 AktG, the general meeting must be involved only upon request by the management board. However, in some cases, the discretion is considered so limited that it is interpreted as an obligation to involve.

This unwritten right of approval was first recognized by the German Federal Court in the so called Holzmüller decision. According to the German Federal Court the crucial factor to decide, whether the general meeting must be involved, is how deeply the respective measure interferes with the shareholders’ membership rights and financial interests. Point of reference is whether the management board cannot reasonably assume that it can take this measure autonomously without needing the approval of the general meeting.

Subject of the Holzmüller decision was the aspect of group formation control (Konzernbild-ungskontrolle), specifically the spin-off (Ausgliederung) of the essential part of a company to its subsidiary. The parent company was sole shareholder of the subsidiary. In this case, the German Federal Court recognized that the approval of the general meeting must be obtained, as the companies’ shareholders no longer have participation rights in the outsourced essential part of the company after the spin-off. In particular the parent-company’s shareholders don’t have the right to participate in the resolution regarding the distribution of dividends deriving from the outsourced part any longer. The result is a so-called mediati-zation effect (Mediatisierungeffekt). As a result of the Holzmüller decision, the use cases of an unwritten general meeting competence were increasingly expanded in the literature.

Subsequently, the German Federal Court specified the principles of the Holzmüller decision in the so-called Gelatine decision and stated that the unwritten competences of the general meeting are to be recognized "only within narrow limits".

The overall essence of the Holzmüller decision and the Gelatine decision is that the mediatization effects to the shareholders' rights by significant changes in the corporate structure resulting from the M&A transaction or restructuring must be considered. A mediatization effect must always be assumed if the measure affects a part of the company that corresponds to a value of 70 % to 80 % of the company's total assets.

In the following we would like to provide a brief overview of the measures in which the assessment of the need for approval may be possible or does not appear to be necessary.

Individual cases

The assessment of the various individual cases is still in motion and there is no decision of the German Federal Court yet.

1. Sale of a share or other part of the company

Even if the sale of shareholdings or other parts of the company does not initially have a mediatization effect because the value of the sold part does not represent 70 % to 80 % of the company’s total assets, it might lead to a change in the company structure that results in a similar restriction to the shareholders’ rights.

Furthermore, shareholder agreements can also lead to a mediatization effect. If, for example, only a small portion of the company’s shares is sold, but extensive rights are granted to the minority shareholder in the shareholder’s agreement, it can also constitute a mediatization effect.

2. Spin-off

In principle, special rules of the German Transformation Act (Umwandlungsgesetz; UmwG) apply to spin-offs of a business-part into a subsidiary by way of partial universal succession (partielle Gesamtrechtsnachfolge). Nevertheless, approval may also be required in individual cases in accordance with section 179a German Stock Corporation Act or the Holzmüller/Gelatine decisions for the spin-off by way of singular succession (Einzelrechtsnach-folge).

3. Acquisition of a company

The acquisition of a company by a stock corporation is generally unproblematic, provided that the object of the company is within the object of the stock corporation according to its own articles of association. However, there have also been cases where the need for approval has been called into question. Several criteria are discussed here, such as the existence of a group opening clause (Konzerneröffnungsklausel) or the increase in the degree of culpability in case of externally financed acquisitions. The existence of the mandatory approval by the general meeting must therefore be examined on a case-by-case basis. The same must be said about the acquisition of material assets, as it can make no difference whether the acquisition is carried out through a share deal or an asset deal.

4. Other structure measures

In case of other structural measures, the possible mediatization effect has to be taken into account, however according to the German Federal Court, such requirements should not be extended too far. In particular, the following can constitute such a structural measure:

Liquidation of significant subsidiaries; or
Shutdown of significant parts of the company.

5. Measures not requiring consent

An approval is currently not required for the mere transfer of a company from one subsidiary to another, as this does not result in any mediatization effect to the shareholders of the parent company. The same applies to measures such as an initial public offering (IPO) or a delisting, provided that it is not combined with other measures requiring approval, such as in particular a capital increase or a change in the object of the company.