No individual compensation for shareholders in the event of share price losses according to LG Munich I – Syntellix case
On October 27, 2021, the Munich I Regional Court (Case No. 5 HK O 1687/19) made a landmark decision stating that individual shareholders of Syntellix AG cannot assert claims for damages against the company itself due to falling share prices. This dispute touches on significant aspects of capital market law and highlights the hurdles shareholders must overcome to enforce compensation claims for losses in the value of their holdings.
Background of the proceedings
In the case in question, several shareholders of Syntellix AG asserted claims for damages because they suffered financial losses due to a significant drop in the value of their shares. They essentially based their claims on the allegation that the company had disseminated erroneous or misleading capital market information, leading to the share price drop. However, the court did not find a sufficiently concrete claim for liability in favor of individual shareholders.
Corporate law principles regarding pecuniary losses
The judgment reaffirms the principles recognized in Germany concerning the allocation of responsibilities under company law: Pecuniary losses arising from actions or omissions by the company primarily affect the company’s assets. Individual shareholders generally cannot derive their own compensation claims from such losses unless a special obligation to the respective shareholder has been established.
The so-called “separation principle” ensures that the pecuniary loss is initially attributed to the company’s level. This prevents individual shareholders—from irrespective of an individual legal relationship—from being able to demand immediate compensation when the value of their holding is negatively affected by company-related actions.
Legal bases for claims and their limitations
Tortious liability and capital market information obligations
German capital market law does provide various instruments for investors who have been informed incorrectly or incompletely to assert claims—such as prospectus liability or under Sections 37b, 37c of the Securities Trading Act (WpHG). However, in the present case, no direct and specific breach of information obligations could be proven that would grant the plaintiffs an individual claim for damages.
Differentiation between company and individual interests
The court emphasized that a price loss in itself does not constitute an independent damage within the meaning of Section 823 of the German Civil Code (BGB) or other civil law grounds for claims, but is instead economically the result of a price risk that every shareholder of a listed company must generally accept. Compensation would only be possible if a direct financial loss occurred outside of the participation in the company’s assets, or if there was deliberate deception that demonstrably influenced the investment decision.
Implications for the legal position of shareholders
The judgment provides clarity regarding the possibilities and limits of compensating for losses in stock positions collectively or individually. It makes clear that neither general market fluctuations nor company-related measures will lead to individual claims without a specific relationship basis. In cases of failed capital measures or omissions of mandatory information, investors are thus generally left with the option of enforcing their rights collectively (for example, via the general meeting) or, in extreme cases, by means of a class action.
Conclusion and advice for those affected
The decision by LG Munich I reaffirms the legal requirements and protective purposes in capital market transactions: Individual shareholders are limited in their individual claims by the separation principle and collective mechanisms of company liability. Exceptions exist only where a targeted violation of individual rights can be proven.
Numerous legal issues arise for investors and companies in connection with capital market transactions, prospectus liability, and the protection of shareholder interests. For the examination and evaluation of specific cases, the lawyers at MTR Legal are available as experienced advisors with extensive industry expertise.
