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Breach of duty by management – Special audit in cases involving a GmbH

August 2018

If there is reason to suspect that management has breached its duties, the shareholders of a GmbH, a type of a German private limited company, can request that a special audit be carried out.

We at the commercial law firm GRP Rainer Rechtsanwälte note that the responsibilities of the shareholders of a GmbH include approving the annual financial statement as well as scrutinizing and monitoring management. In a judgment from December 14, 2017, the Oberlandesgericht (OLG) München, the Higher Regional Court of Munich, ruled that the right to scrutinize and monitor management also encompasses the right to appoint special auditors (Az.: 23 U 1481/17).

According to the OLG München’s ruling, a special audit is only impermissible if the application for its implementation is unlawful and constitutes a breach of a fiduciary duty by the shareholder filing the application. Moreover, the implicated shareholder has no voting rights in relation to the preparatory actions and decisions taken in respect of a special audit.

If shareholders of a GmbH are concerned that management has breached its duties, they can request a special audit. For the purposes of adopting a resolution, a simple majority is sufficient. In the case before the OLG München, two families with equal shares in a GmbH & Co. KG, a type of limited partnership with a GmbH as general partner, as well as a Komplementär-GmbH, a.k.a. a general partner GmbH, had fallen out. One of the families filed for a special audit and later voted in favour of this measure, whereas the other family voted against it. The managing director was not entitled to vote and the resolution concerning a special audit was passed.

The managing director then raised a legal complaint against this. However, the lawsuit was largely unsuccessful. The OLG München held that the shareholders of a GmbH are entitled to appoint special auditors. It ruled that in order for this to happen it is necessary for a tangible cause informed by the facts and circumstances to be presented to the general meeting of the shareholders. The Court noted that the suspicion of a breach of duty by management must follow from these facts and circumstances. Furthermore, the special audit must prove to be expedient in the form in which it was specifically requested. The Court went on to say that a special audit is only impermissible if the application is unlawful and constitutes a breach of a fiduciary duty by the shareholder filing the application.

Disputes among the shareholders of a GmbH are a regular occurrence. If these differences of opinion cannot be cleared up, lawyers who are experienced in the field of company law can offer advice and recommend targeted resolutions.

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