Contractual Regulation Takes Precedence
After a corporate transaction such as the sale of business shares, disputes can arise between the buyer and seller even after the acquisition. The OLG Naumburg made an important decision in such a post-M&A dispute. In its ruling on June 26, 2023, it made clear that a contractual agreement in the purchase contract generally takes precedence over a statutory discretionary provision (Ref.: 12 U 23/23).
So-called earn-out clauses are often used in company purchase agreements. This contractually stipulates that the buyer initially pays a base price and later an additional amount defined by the earn-out clause. This amount is only due if certain conditions are met. During the business transition, only the base price must initially be paid, according to the commercial law firm MTR Legal Attorneys, which focuses its advisory services on M&A.
Sale of Business Shares in GmbH
In the case before the OLG Naumburg, a shareholder of a GmbH sold his business shares to his partner. In the purchase agreement, the parties agreed that the buyer would pay part of the purchase price immediately and a further amount as a profit share when the balance sheet for the fiscal year was available.
By taking over the business shares, the buyer became the sole shareholder of the GmbH. As such, he resolved in the shareholders’ meeting that no profit distribution should be made for the relevant fiscal year, and thus the former partner would not receive a proportional distribution. The sole shareholder justified this decision with an economically poor outlook for the current and following fiscal years.
The seller was not satisfied with this reasoning. Through a staged lawsuit, he sought information about the annual financial statement or the underlying information to quantify and claim his profit share. In the first instance, the Halle Regional Court dismissed the claim. The defendant was not obliged by the purchase agreement to ensure a positive profit distribution resolution for the relevant fiscal year, said the Halle Regional Court.
Right to Information After Sale
In the appeal proceedings, however, the OLG Naumburg decided differently. The court ruled that the plaintiff had a right to information, from which a payment claim could potentially be derived.
The OLG Naumburg explained that, according to the established case law of the Federal Court of Justice (BGH), good faith requires granting the right to information if the legal relationship between the parties implies that the entitled party is justifiably unclear about the existence and extent of his rights, and the other party can easily provide this information.
In the present case, the plaintiff, as a former shareholder, no longer had full insight into the relevant fiscal year and the data for calculating his profit share. However, the defendant, as the sole shareholder, could easily provide the requested information.
Violation of Duties from Purchase Agreement
There was also suspicion that the defendant had violated his duties under the purchase agreement. By resolving as the sole shareholder that no profit distribution should be made for the relevant fiscal year, the defendant may have violated an obligation from the purchase agreement, which stipulated that the profit share for the relevant fiscal year belonged to the seller, the court explained.
Legally, § 29 para. 2 GmbHG grants shareholders discretionary power in the profit distribution resolution, whether the profit is distributed to the shareholders or retained in the company to strengthen it, the OLG noted. Here, however, the defendant was bound by the profit allocation agreement in the purchase contract. When the agreements made in the purchase contract regarding a business share and the statutory discretion according to § 29 para. 2 GmbHG collide, the contractual provision generally takes precedence over the statutory discretionary provision, the OLG Naumburg made clear. This also limited the sole shareholder’s decision-making power in relation to the former shareholder. It was unequivocally agreed in the purchase contract that the sellers of the business shares, including two other shareholders besides the plaintiff, were entitled to the profit distribution for the relevant fiscal year, the OLG stated.
The ruling highlights that purchase agreements in corporate transactions should be as detailed as possible to avoid disputes after the M&A deal.
MTR Legal Attorneys advises on corporate law and M&A.
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