OLG Munich on Removal for Important Reasons – Case No.: 23 W 354/23e
Even seemingly small errors in bookkeeping can be an important reason for the removal of a shareholder-director. This is evident from a ruling by the OLG Munich dated May 25, 2023 (Case No.: 23 W 354/23e).
The removal of a director can be decided by a simple majority vote in the shareholders’ meeting. However, there may be agreements that stand in the way of removal. Nevertheless, the removal for important reasons remains unaffected, according to the business law firm MTR Legal Rechtsanwälte, which advises, among other things, on corporate law.
The OLG Munich has now decided that even small errors by the director, which have not yet caused any financial damage, can constitute an important reason for removal.
In the underlying case, two shareholders had founded a GmbH that operates a specialty store within a franchise system. The plaintiff held 51 percent of the shares in the GmbH as the majority shareholder, and the defendant held 49 percent. The minority shareholder was simultaneously the sole managing director of the GmbH.
Errors in Bookkeeping
When the majority shareholder, as the franchisor, introduced new software in the branches that, among other things, captured workflows in customer management, bookkeeping, and inventory management, test purchases revealed that the minority shareholder had not properly recorded cash receipts and had manipulated IT records. Additionally, the invoices were not consecutively numbered. The majority shareholder then removed the director with immediate effect during an extraordinary shareholders’ meeting. Moreover, he imposed a ban on the minority shareholder from entering the premises with his majority vote. The minority shareholder voted against these resolutions and did not comply, continuing to conduct business and staying on the premises.
The majority shareholder sought an interim injunction. The Munich District Court rejected the application for an interim injunction, arguing that the removal of the director was not effective as there was no important reason. It was not evident that the defendant director had intentionally misrecorded cash receipts.
OLG Munich Grants Interim Injunction
However, the OLG Munich saw this differently and granted the application for an interim injunction. If there is a dispute about the validity of the removal of a GmbH director, an interim injunction can be issued to prohibit the activity and the exercise of the corporate function, the OLG stated. The prerequisite is that it has been credibly demonstrated that there are important reasons for the removal and that these have been validly decided by the shareholders’ meeting.
These prerequisites were met here. The plaintiff had credibly demonstrated the breaches of duty by the defendant director. An important reason exists if, considering all circumstances, the continued presence of the director cannot be reasonably expected of the company and the shareholders. In a two-person company like this, high demands are placed on the existence of an important reason. Usually, a gross breach of duty by the director is required for this.
For the defendant director, it was a central duty to properly record business transactions. According to § 146 Abs. 1 Satz 2 AO, he is obliged to record cash receipts daily. Even if one assumes a problem with the IT system in his favor, which hindered immediate proper booking, it can be assumed that a solution for proper booking would be found within five working days, the OLG said.
Gross Breach of Duty Even Without Financial Damage
Even if no immediate financial damage occurred, the defendant grossly violated his duties as a director. Additionally, there is a certain risk that the tax authorities could use identifiable gaps in the sequence of invoice numbers as a basis for an estimate, the OLG Munich further explained.
Overall, the credible breaches constituted an important reason for removal. There was also a risk of repetition, making further activity by the director for the company and the plaintiff unreasonable, according to the OLG Munich.
The decision of the OLG confirms that even in a two-person company, seemingly small errors can lead to the removal of the director.
MTR Legal Rechtsanwälte advises comprehensively in corporate law.
Feel free to contact us!