Following its judgment of 24 January 2012 (II ZR 109/11) the German federal supreme court (BGH) has held that in the event of a redemption of shares the remaining shareholders may not necessarily be held personally liable for payment of the compensation if the company becomes unable to pay or if it refuses to pay on the grounds of a lack of sufficient funds. Equally, personal liability of the remaining shareholders is not automatically triggered if the company becomes insolvent. With the decision of January 2012 the BGH had ruled that a resolution to cancel shares becomes effective upon the concerned shareholder being notified of the redemption and not only upon full payment of the mandatory compensation. Previously, this had been disputed. One of the arguments underlying that decision had been that the concerned shareholder may be protected by holding the remaining shareholders personally liable for payment of the compensation.

In the judgment now handed down, the BGH reiterates that personal liability of the remaining shareholders arises if the departed shareholder is deprived of its compensation due to insufficient funds of the company on the one hand, while on the other hand the remaining shareholders choose to not to dissolve the company, but continue the company without ensuring its ability to pay the compensation owed. Pursuant to the BGH such behaviour constitutes an unjust seizure of the increased value of their shares resulting from the uncompensated redemption. However, the BGH considers these prerequisites not to be fulfilled in the case at issue. Shortly before the compensation fell due, the company had informed the departed shareholder, that it was over-indebted and unable to pay the compensation. Whether or not this was true, was left open in the decision under appeal. Approximately six months later the company filed for insolvency.

A refusal of the company to pay does in the BGH's view not per se justify the conclusion that the remaining shareholders acted unjustly, even if the company had sufficient funds to pay the compensation. It argues that a dispute about payment may have manifold reasons. The risk of the company not voluntarily paying the compensation when due lies with the departing shareholder, who may sue the company, if required. Equally, the remaining shareholders do in the opinion of the court not necessarily incur personal liability, if insolvency proceedings over the estate of the company are commenced nor if the company becomes factually insolvent without the shareholders having unduly delayed filing for insolvency. As in such case the company is automatically dissolved, the BGH considers an unjust continuation of the company by the other shareholders as excluded by nature.

The BGH further decided that personal liability of the remaining shareholders may not only arise in cases of compulsory redemption but also if shares are redeemed with the concerned shareholder's consent.

The German text of the BGH's judgment can be found here. If you are interested in further information on this topic, please do not hesitate to contact Christine Oppenhoff.