The widely spread practice amongst middle-sized German limited liability companies (GmbHs), to establish a non-obligatory supervisory board by way of a simple shareholders resolution on the basis of an authorisation provided in the articles of association, has been held void by the higher regional court of Berlin (Kammergericht Berlin), although the validity of this method has so far not been called into question by legal authors or courts.

The Kammergericht argues that a supervisory board does not come into existence until its formation is actually resolved by the shareholders, with the consequence that a resolution to install a supervisory board constitutes a conversion of a company without a supervisory board into a company having a supervisory board. This presents a fundamental structural change of the company's corporate constitution and, therefore, an amendment to its articles of association requiring a notarially recorded resolution passed with a majority of at least 75 per cent of the votes cast and its entry in the commercial register of the company in accordance with secs. 53, 54 German Limited Liability Companies Act (GmbHG).

The compliance with the requirements for an amendment of the articles of association can, in the Kammergericht's view, not be replaced by an authorisation to establish a supervisory board provided in the company's articles of association. The court argues that authorisations to deviate from the articles of association under certain circumstances may only eliminate the need to comply with the formal requirements for an amendment of the articles where singular, non-permanent deviations are concerned, which is not the case with the formation of a supervisory board. Even if such authorisations could be construed as an anticipated consent of all shareholders, including shareholders joining the company at a later point in time, to the formation of a supervisory board, this could at most render the requirement of a 75 per cent majority superfluous, but not the remaining requirements for an amendment of the articles. If one followed the reasoning of the Kammergericht, the avoidance of the requirement for a 75 per cent majority would be the only merit of including an authorisation in the articles.

The judgement of the KG is final. It may be expected to cause considerable uncertainty. Initial responses to the decision are dismissive. The decision is in contradiction to a judgement of the higher regional court of Munich (OLG München) rendered in 2012 (9 August 2012, 23 U 4173/12), which has been implicitly approved by the German Federal Supreme Court (BGH) by way of a dismissal of a complaint against the non-allowance of the appeal. It is moreover in conflict with the tacit approval of the practice, now dismissed by the Kammergericht, in an earlier judgement of the BGH (7 June 1993, BGHZ 123, 15 et seqq.), in which the BGH silently assumed the permissibility of such procedure. Nevertheless, in light of it being a high-court decision and of its potentially far-reaching legal implications, the judgement of the Kammergericht needs to be taken seriously: If one took the Kammergericht's position, this would not only affect resolutions to form a supervisory board passed without meeting the requirements for an amendment of the articles, but also any legal acts implemented by such an invalidly established supervisory board, for example the appointment or removal of managing directors.

Should you have any questions concerning the decision or be interested in further information on this topic, please do not hesitate to contact Christine Oppenhoff.