Sale of real estate by a property company in the legal form of a limited liability company: no longer a notarized consent resolution required

The restriction on the power of representation under Section 179a AktG, which actually applies to the management board of a stock corporation, does not apply mutatis mutandis to the management of a GmbH, according to a recent decision by the Federal Court of Justice. The decision has significant implications for transaction practice in the real estate industry when a limited liability company sells a property that represents all of its corporate assets. Until now, it was questionable whether it required a resolution of consent from its shareholders for this and whether this resolution required notarization. In its ruling of January 8, 2019 (Case No. II ZR 364/18), the German Federal Court of Justice has now clarified that – contrary to the previously prevailing view in legal literature – Section 179a AktG does not apply by analogy to the GmbH. The BGH has thus ensured a noticeable reduction in transaction costs in the case of the participation of a GmbH on the seller side.

1. section 179a AktG as a cost driver in real estate transactions

In the interest of shareholder protection, Section 179a of the German Stock Corporation Act (AktG) restricts the power of representation of the Executive Board of a stock corporation and requires a notarized resolution of approval by the Annual General Meeting for the obligation to transfer the entire assets of the company. In the absence of such a resolution of consent, corresponding contracts are invalid. According to the hitherto prevailing view, this consent requirement was transferred to the GmbH by analogy. The sale of a property as the sole asset by a GmbH by way of an asset deal therefore regularly required a notarized consent resolution in prudent consulting practice.

The business value relevant for the assessment of fees for such a consent resolution is determined by the content of the legal transaction to which the consent relates, i.e. in the present case by the business value of the land purchase agreement, but limited to EUR 5 million. The additional costs of notarization, which are often in the five-digit range, were offset by the uncertainty as to whether the property purchase agreement might be invalid without the “Section 179a resolution”.

Irrespective of the question whether the analogous application of Sec. 179a AktG to the GmbH was convincing in the past, the lawyer’s obligation to always recommend the safest way to the client already regularly required the notarization of the “Sec. 179a resolution” despite the additional costs involved.

2nd decision of the BGH: No analogous application of Sec. 179a AktG to the GmbH

The background to the decision was the sale of the only business property of a GmbH in liquidation. The two shareholders appointed as liquidators of the GmbH i.L. with sole power of representation disputed about the suitable purchaser of the property in question. After the conclusion of the purchase agreement by a liquidator with a third party purchaser and the registration of a corresponding priority notice of conveyance, the other shareholder (who himself had an interest in the acquisition of the property) asserted on behalf of the GmbH i.L. the pending invalidity of the purchase agreement due to the absence of a notarized resolution on consent pursuant to Sec. 179a AktG by analogy. In its decision, the BGH finally commented extensively on the question of the analogous applicability of the provision to the GmbH and dealt in detail with the prevailing view represented in the literature. The BGH denied the existence of an unplanned regulatory gap in GmbH law required for an analogy. The participation, control and information rights of shareholders of a GmbH are much more pronounced than those of shareholders of an AG. In particular, Sec. 51a GmbH establishes a right to information vis-à-vis the management which in principle extends to all matters of the company. The resulting lesser need for protection of the GmbH shareholders against the sole actions of the management does not justify a restriction of the organ’s power of representation. This would create considerable legal uncertainty as well as liability risks which cannot be justified in the context of an overall weighing of interests in GmbH law.

However, the BGH also referred to its previous case law, according to which the managing director of a GmbH is obliged to submit particularly significant transactions to the general meeting of the company for approval, Section 49 (1). 2 GmbHG. Irrespective of a provision in the articles of association of the GmbH with a corresponding reservation of consent, a managing director is therefore obliged to obtain the consent of the shareholders’ meeting in advance, at any rate in the case of a contract on the sale of the entire assets.

3. implications for practice

According to the decision of the Federal Court of Justice (BGH), a shareholders’ resolution approving the transfer is also required, but it no longer needs to be notarized. Furthermore, its absence no longer leads in principle to invalidity of the contract, but rather, depending on the circumstances of the individual case, only to liability of the management vis-à-vis the company. From the perspective of transaction practice, it should also be emphasized that the additional costs previously incurred for the notarization of the consent resolution in the case of the GmbH will no longer apply in the future.

4. outlook

In any case, the BGH has provided the hoped-for clarification in GmbH law and made a decision that is to be welcomed from the perspective of transaction practice.

With regard to the analogous applicability of Sec. 179a AktG to partnerships, the BGH did not expressly take a position. Although the OLG Düsseldorf assumed analogous application to the limited partnership in its judgment of November 23, 2017 (Case No. I-6 U 225/16), it rejected an obligation to notarize. Nevertheless, depending on the circumstances of the individual case, it must be carefully examined whether notarization of the resolution appears to be advisable in order to ensure a legally secure procedure. We will keep you informed of further developments in case law on the question of the analogous applicability of Sec. 179a AktG to the KG.