Challenging Discharge Resolutions in Case of Incorrect Information – Requirements for Relevance
The question of contesting discharge resolutions of a company’s management continues to gain practical relevance, especially in light of incorrect or incomplete information provided to the shareholders prior to decision-making. The case law of the Higher Regional Court (Oberlandesgericht) of Frankfurt am Main (see judgment of 29.12.2020, ref.: 5 U 231/19) has specified the criteria and prerequisites for a successful challenge, thereby providing further clarity for corporate law practice. Below follows a detailed examination of the reasons for the decision and their relevance to practice in corporate law.
General Requirements for Challenging Discharge Resolutions
The discharge of executive bodies is an important decision for shareholders under German company law. When a managing director or board member is granted discharge, this is generally associated with the approval of their administration and creates legal peace with respect to disclosed events.
The law provides explicit provisions for discharge both for the GmbH (§ 46 No. 5 GmbHG) and for the stock corporation (§ 120 AktG). A discharge resolution can generally be challenged in court if corporate participation or information rights have been violated in its adoption. In particular, a challenge is possible if the shareholders’ meeting was not sufficiently or correctly informed about facts relevant to the decision.
The Frankfurt Higher Regional Court – No Challenging if the False Information is Not Relevant
Content of the Decision and Facts
Essentially, the Frankfurt Higher Regional Court had to decide under what circumstances a discharge resolution can be challenged due to allegedly incorrect information. The matter was triggered by the allegation that the management had made inaccurate statements in the context of a shareholders’ meeting, which allegedly rendered the discharge resolution invalid.
The court first clarified that incorrect or incomplete information alone does not automatically render the resolution invalid or subject to challenge. What matters is whether the information constituted a material basis for the decision and could therefore have influenced the decision-making process of the shareholders.
Standard of Relevance
The Frankfurt Higher Regional Court specified that mere formal breaches of the duty to provide information are not sufficient for a successful challenge. Rather, there must be substantive relevance; that is, the incorrect information or withheld knowledge must have been capable of influencing the voting behavior of the shareholders. Only if decision-relevance can be established is there a defect in the decision-making process that could justify a challenge.
In doing so, the court adheres to established principles of challenge law: Only those deficiencies that could have resulted in a potentially different voting outcome are suitable to call the resolution into question. Thus, a distinction is made between mere formal breaches of duty to inform and those with a substantive influence on the content of the resolution.
Assessment and Consequences for Corporate Law Practice
Significance for Corporate Bodies and Shareholders
For corporate officers, the judgment means that, apart from serious information deficits that could have led to a different decision, there is no increased risk of challenge. However, the responsibility to provide complete and accurate information before discharge is granted remains in place.
Shareholders wishing to challenge the discharge of executive bodies must set out in detail which information was incorrect or incomplete and why complete or correct information might have led to a different decision. General objections are insufficient in challenge proceedings.
Consequences for Disputes in Company Law
The decision of the Frankfurt Higher Regional Court—beyond the specific case decided—serves as a signal for the interpretation of corporate law rules on challenging resolutions. It clarifies that the litigation risk for officers and the company as a whole is minimized when only formal but not decision-relevant information violations are asserted. This clarification helps protect practice from abusive or premature challenges.
Summary Assessment
A challenge to discharge resolutions due to alleged breaches of information duties requires that these breaches were decisive for the formation of the shareholders’ will. Only if the relevant information affected the decision-making process does a challenge to the resolution come into consideration. The mere possibility that information was incorrect is not sufficient according to the Frankfurt Higher Regional Court.
Open Legal Questions and Contacts
The precise distinction between formal and relevant information deficiencies remains challenging in individual cases and depends on the circumstances of each case. Case law in this area is continually evolving.
For companies, investors, and high-net-worth individuals, complex issues relating to the preparation, passing, and challenge of corporate resolutions regularly arise. Sound legal advice can help assess the individual situation and the available options. The Rechtsanwälte of MTR Legal are available for interdisciplinary dialogue and to clarify specific questions relating to discharge resolutions and relevant information obligations.
