Members of the management board wanted to appoint themselves as managing directors of a subsidiary GmbH
A case was brought before the Federal Court of Justice (BGH) in which the three members of the board of management of a stock corporation were to be appointed as managing directors of a wholly-owned subsidiary GmbH.
Two of the three members of the board of management were jointly authorized to represent the corporation. Together, two of these members authorized a lawyer to represent the stock corporation when establishing one or more GmbHs and when appointing the managing directors of the GmbH.
The lawyer exercised his power of attorney: He founded a subsidiary GmbH on behalf of the stock corporation and appointed the three members of the board of management as its managing directors.
However, the court of registration doubted the lawful appointment of the two managing directors who had previously authorized the lawyer on behalf of the stock corporation.
The court issued an interim order making the registration of the company conditional on the approval of the supervisory board of the stock corporation of the shareholder’s resolution regarding the appointment of these two managing directors.
Furthermore, the registry court demanded the presentation of an exemption from the prohibition of self-contracting pursuant to Section 181 Alt. 1 of the German Civil Code (BGB) for these two members of the board of management concerning their appointment as managing directors of the GmbH.
The pre-GmbH disagreed with these demands and took the case to court. The case aimed to resolve whether the self-appointment as managing director of the subsidiary GmbH is subject to the prohibition of self-contracting and, if so, who is responsible for approving the legal transaction.
Section 181 Alt. 1 of the German Civil Code (BGB) – also in case of actions via authorized representatives
The German Federal Court of Justice (BGH) concluded that the prohibition of self-contracting also applies to a resolution governing the self-appointment as managing director of a subsidiary.
Therefore, the German Federal Court of Justice confirmed the ruling of the previous instance and reinforced the prevalent opinion regarding the issue. Accordingly, this would require exempting the two corresponding members of the board of management from the restriction of Section 181 Alt. 1 of the German Civil Code (BGB).
An exemption from the prohibition of self-contracting would be in option through means such as
- a provision in the articles of association of the stock corporation,
- a suitable resolution by the supervisory board or
- a declaration by the members of the board of management who are not affected by the prohibition of self-contracting in the specific case.
However, the German Federal Court of Justice (BGH) was not required to rule on the specific nature of such a release and, therefore, left this matter open.
The German Federal Court of Justice has confirmed its case law
The German Federal Court of Justice confirmed its existing case law concerning the power of attorney granted for the appointment of managing directors: When it comes to the application of Section 181 Alt. 1 of the German Civil Code (BGB), it is not relevant whether the persons with a limited power of attorney appoint themselves directly or via an authorized representative.
As a consequence, the authorized representative would also have to be released from the restrictions of Section 181 Alt. 1 of the German Civil Code (BGB).
In this specific case, the resolution by the board of management regarding the appointment was provisionally invalid.
Who can approve the invalid resolution?
Finally, the court was required to rule on who can approve the provisionally invalid resolution in the context of this constellation.
If there are other members of the board of management who are authorized representatives in addition to members of the board of management subject to Section 181 Alt. 1 of the German Civil Code (BGB), these members of the board of management bear the responsibility and not the supervisory board. Section 112 sentence 1 of the German Stock Corporation Act (AktG) does not apply to appointing a member of the board of management of a stock corporation as managing director of a subsidiary.
In the case before the German Federal Court of Justice (BGH), the third member of the board of management was authorized to represent the stock corporation jointly with an authorized signatory (Prokurist). Furthermore, this third member of the board of management was neither involved in the authorization of the representative nor in the resolution concerning the appointment. Therefore, the German Federal Court of Justice (BGH) concluded that the third member of the board of management was in a position to approve the appointment resolution together with an authorized signatory.
The German Federal Court of Justice (BGH) refrained from clarifying whether the supervisory board is responsible for the approval if the board of management does not have any further members.
If members of the board of management of a German stock corporation intend to be involved in their own appointment as managing directors of a subsidiary, these proceedings require a thorough legal examination in advance in order to prevent the appointment from being invalid. Companies also need to examine whether prior self-appointments comply with the requirements of the German Federal Court of Justice (BGH). Subsequent approval may be a sensible step in these cases.
