Concept and fundamentals of the action for substitution of a resolution
Die Action for substitution of a resolution is a legal instrument in German corporate law. It applies when the members of a company, association, or other incorporated group are unable or refuse to pass a resolution required for the organization in accordance with the relevant articles of association or statutory provisions, or refuse to take measures necessary for the group. The purpose of the action for substitution of a resolution is to ensure the ability and functionality of such associations to act.
Legal basis
The essential statutory provisions regarding the action for substitution of a resolution are found in the Civil Code (BGB), in particular in the regulations governing registered associations (§§ 21 et seq. BGB) and civil law partnerships (§§ 705 et seq. BGB). Furthermore, the Limited Liability Companies Act (GmbHG), the Stock Corporations Act (AktG), and the Transformation Act (UmwG) contain relevant provisions. The action for substitution of a resolution is particularly significant in association law and company law.
Scope of application of the action for substitution of a resolution
Requirements
An action for substitution of a resolution is primarily relevant when a required resolution cannot be passed by the relevant body—usually the general meeting, shareholders’ meeting, or annual general meeting. The failure to adopt a resolution can have various causes, including:
- Lack of quorum of the body
- Deadlock, especially with a tie in votes
- Unjustified refusal to pass a necessary resolution
- Obstruction by minorities preventing a necessary measure
A key requirement is that there is a legal or factual need to adopt a resolution in order to avert harm from the company or association, or to enable a legally required action.
Admissibility
The admissibility of the action for substitution of a resolution depends on the respective legal form as well as the relevant corporate or association law provisions. In many cases, it is required that an attempt was made to pass the resolution through a regular procedure. As a rule, the action for substitution of a resolution is considered admissible only if the relevant body is demonstrably unable to pass a resolution or if the necessary majority is systematically blocked.
Procedure of the action for substitution of a resolution
Eligible claimants and defendants
The applicants or claimants are usually the members or shareholders themselves, often according to a statutory quota regulation or under the provisions of the relevant articles of association. The defendant is generally the company, association, or the relevant body.
Competent court
The competent local court at the seat of the company or association is generally responsible for deciding on an action for substitution of a resolution, unless other jurisdictional rules apply. The procedure is governed by the general provisions of the Code of Civil Procedure (ZPO).
Standard of judicial review
The court examines whether the formal and substantive requirements for the resolution to be substituted are met. It then decides on the merits as to whether the proposed resolution is necessary and compatible with the statutory requirements and the articles of association. The decisive factor is whether the resolution is required in the interest and for the benefit of the company or association.
The court may substitute the resolution by judgment, which has the same effect as a regularly adopted resolution. In exceptional cases, the court may also adopt a different, but reasonable and appropriate, resolution from that sought by the claimant.
Legal consequences of the action for substitution of a resolution
Effects of the judgment
A judgment issued by way of an action for substitution of a resolution has the full effect of a regular board resolution. The substituted resolution is deemed to have been adopted by the competent body once the judgment becomes final. This applies to both the internal powers of the company and its representation in external relations. The company is thus treated as if the resolution had been properly adopted.
Further legal remedies
The parties have access to the usual legal remedies against the court’s decision. In particular, an appeal is possible, allowing the appellate court to review the decision on factual and legal grounds.
Particularities and distinctions
Action for substitution of a resolution versus action for annulment
While an action for annulment aims at eliminating an already adopted defective resolution, the action for substitution of a resolution serves to legally substitute a resolution in case of its absence and thus restore the company’s or association’s capacity to act.
Procedure in different legal forms
There are specific particularities in various legal forms regarding the action for substitution of a resolution:
- In association law (§ 37 BGB), for instance, judicial appointment of missing board members is provided for.
- In GmbH law, according to § 45 GmbHG, judicial determination of resolutions is possible in the event of a deadlock in shareholders’ meetings.
- In stock corporation law, under § 246a AktG, there is only a specific possibility to determine the validity of a resolution in the context of an action for annulment.
Significance and practical relevance
The action for substitution of a resolution ensures the functionality and ability to act of associations under German company and association law, even when democratically intended decision-making processes are blocked. It guarantees the proper functioning of collective decision-making bodies, prevents abuse by minorities, and especially protects minority shareholders and the company as a whole from harm due to inability to act.
Literature and further sources
- German Civil Code (BGB), in particular §§ 21-79
- Limited Liability Companies Act (GmbHG), in particular §§ 45, 46
- Stock Corporations Act (AktG), in particular § 246a
- BeckOK BGB, commentary on § 37
- Palandt, Civil Code, commentary on association law and company law
Further detailed information can be found in relevant commentaries as well as the current decisions of the courts in corporate and association law.
Frequently Asked Questions
What deadlines must be observed when filing an action for substitution of a resolution?
The deadlines for filing an action for substitution of a resolution are generally governed by the respective statutory provisions, in particular the Civil Code (BGB) and the Limited Liability Companies Act (GmbHG). In the context of condominium owners’ meetings, for example, § 44 (1) sentence 2 WEG provides for a one-month period following the rejection of an application or the failure to adopt a resolution. For partnerships under civil law or GmbHs, the general procedural deadlines of § 253 ZPO and any specific provisions under company law apply. If the deadline is missed, the claim may be inadmissible and the matter may need to be resubmitted through a new application, provided this is possible under company law.
Which parties are entitled to bring an action for substitution of a resolution?
In principle, only those persons or members of a company who have the right to propose a specific resolution and whose proposal was denied by the competent assembly or majority are actively entitled to bring an action for substitution of a resolution. In condominium law, these are typically individual condominium owners or a minority under § 22 (2) WEG, in association law (§ 37 BGB), and in GmbH law (§ 50 (3) GmbHG) generally the shareholders whose motion was not put to a vote or was rejected. Third parties or outsiders with only an indirect interest in the resolution are not entitled to bring an action.
What role does judicial discretion play in the action for substitution of a resolution?
In the context of the action for substitution of a resolution, the court examines not only the formal regularity of the application, but also whether the requested resolution is substantively permissible and expedient. This follows from the principle that the court steps in for the decision-making body and substitutes its decision. In areas that grant room for assessment or discretion, the court decides at its own discretion; however, it does not have unrestricted freedom of design, but must develop an objectively viable, majority-capable, and lawful resolution. The court may amend or specify the application in order to ensure that the substituted resolution can be properly implemented.
Is a prior attempt at conciliation required in the procedure for substitution of a resolution?
Whether a prior attempt at conciliation is required depends on the relevant area of law. In condominium law, state law (§ 15a EGZPO) may provide for a mandatory conciliation hearing. In many corporate law settings, and especially in association or GmbH law, a prior internal conciliation procedure is not mandatory unless explicitly provided for in the articles of association. Nevertheless, an out-of-court settlement is often advisable, as judicial substitution proceedings may involve considerable effort and cost and might strain the relationship between the parties.
What costs can arise in proceedings for substitution of a resolution?
The costs of an action for substitution of a resolution consist of court fees and out-of-court costs (especially legal fees). The amount of court fees depends on the amount in dispute, which is usually determined according to the significance of the contested or substituted resolution. In complex corporate or condominium disputes, the amount in dispute can be high, resulting in substantial cost risks. Additional costs may arise for experts if the court deems it necessary to obtain an expert opinion. In the event of a loss, the unsuccessful party has to bear the costs of the legal dispute, unless the law provides otherwise.
Can new aspects or motions be introduced in proceedings for substitution of a resolution?
In proceedings for substitution of a resolution, the court is generally bound by the application submitted during the proceedings. Broadening the motion or introducing entirely new proposals is inadmissible during the ongoing proceedings. However, it is possible to clarify or slightly modify the motion if necessary to implement a proper resolution. The court itself can adapt the proposed resolution in substance, provided this is covered by the original claim and the parties have been heard. New motions, on the other hand, must be asserted in a separate procedure.
What effects does a judgment granting substitution of a resolution have?
If the court grants the application for substitution of a resolution, the judgment replaces the missing or rejected resolution of the company or owners’ meeting with immediate legal effect. The judgment-substituted resolution is deemed equal to a properly adopted resolution and is binding for all parties involved. Where special formal requirements or registrations (e.g., in the commercial register or land register) are required for the effectiveness of a resolution, the judgment must be submitted to the competent authorities as a substitute for the resolution to obtain legal or registry effect. Moreover, the judgment can serve as the basis for enforcement if the resolution is capable of execution.
