The German federal supreme court (BGH) has held that the executive board is authorised to cancel a general meeting of shareholders, which it previously convened. Pursuant to the BGH, this authority extends to a cancellation of general meetings convened by the executive board at the request of a shareholder minority in accordance with sec. 122 sub-sec. 1 Stock Corporation Act (Aktiengesetz). This provision affords to shareholders, who in aggregate hold 5 per cent or more of the entire share capital of a company, the right to request from the executive board the convocation of a general meeting. The BGH does not see a sound basis in corporate law for the view taken by a part of legal literature, pursuant to which such general meetings may only be cancelled by the executive board in exceptional cases. Only if the minority shareholders themselves, after having been authorised to do so by court in accordance with sec. 122 sub-sec. 3 Stock Corporation Act (Aktiengesetz), convened the meeting, the executive board is entitled to cancel the meeting.

For the BGH, the competence of the executive board for the cancellation follows from its general authority to convene general meetings and from its actual convocation of the meeting. Effective minority protection does not require a deviation from this principle. In the event that the meeting is cancelled, the minority shareholders’ position is the same as it would be if the executive board had not complied with the request to convene a meeting from the outset. The minority shareholders may still choose to have themselves authorised by court to convene the meeting themselves pursuant to sec. 122 sub-sec. 3 Stock Corporation Act (Aktiengesetz). In addition, even if by cancelling the general meeting the executive board breaches its duties, this does, pursuant to the BGH, not affect the executive board’s corporate competence. The executive board’s competence is exclusively a question of corporate governance, which cannot be altered by non-compliance with legal duties.

In the case at issue, the federal supreme court has nevertheless considered the cancellation of the general meeting as void, because the executive board had cancelled the meeting after the scheduled time of its beginning, when the shareholders had already passed the access controls and had come together in the meeting room. The court argues that at this point in time it would be logical and in the interest of legal certainty to reserve the right to decide whether or not the general meeting was to be held to the shareholders. If reasons which precluded the holding of the meeting emerged at such short notice that the executive board was not able to cancel the meeting in due time prior to its beginning, the executive board would have had the option to bring about a shareholder decision on an adjournment, interruption, amendments to the agenda or similar measures by making respective motions. The BGH expressly contradicts the view of the legal literature pursuant to which the competence of the executive board to cancel the meeting only ends when general meeting is officially opened. It argues that corporate law did not provide for an official opening. Moreover, at that point in time there was a risk that the executive board, in view of the access controls being aware of the attending shareholders, cancelled the meeting merely because it expected an, in its view, unfavourable proportion of votes.

Although, consequently, the BGH has held that the general meeting was not validly cancelled, it has taken the position that the resolutions adopted during the meeting were voidable. This was due to the fact that after the announcement by the executive board that the meeting was cancelled a significant part of the shareholders, relying on the validity of the cancellation, left the meeting. In the BGH's opinion the voidability may also be asserted by the executive board although the executive board itself caused the voidability. This was due to the purpose of the right of the executive board to take an action for annulment of a resolution being to ensure an objective monitoring of the legality of such resolutions rather than affording to the executive board any subjective rights.

For the full text of the decision in the German language, please click here. If you are interested in further information on this topic, please do not hesitate to contact Christine Oppenhoff.