GER: Obligation for disclosure of economic re-establishment of a GmbH (German limited liability company)

The second civil division of the German Supreme Court (BGH), which is competent in corporate matters, issued a judgment on the liability of shareholders of a GmbH (German limited liability company) if the shareholders re-establish a dormant company economically, but without disclosure of the re-establishment towards the registry court.

The decision is based on the following facts: The plaintiff is an insolvency administrator in insolvency proceedings over the assets of a GmbH founded in December 1993. The GmbH did not dispose over any assets in the year 2003 and did not make any turnover. In July 2004, the shareholder assembly passed a resolution on the change of the firm and the object of the business, transferred the company seat and appointed a new managing director. The managing director applied for registration of the changes in the commercial register without disclosing the economical re-establishment of the company and took up business in correspondence with the new object of business.
In December 2005, the defendant purchased the only share of the GmbH with a nominal amount of 50,000 DM for a price of 7,500 euros. In February 2007, insolvency proceedings were opened over the assets of the GmbH. The plaintiff assessed the receivables filed with the insolvent estate and demanded payment of that amount from the defendant as purchaser of the company share.
The District Court dismissed the claim, however, the Higher Regional Court admitted the claim in its full extent. The German Supreme Court revoked the judgment and referred the case for further investigation to the court of appeal.

The German Supreme Court confirmed the decision of the Higher Regional Court that the commencement of the business on the changed object of business is to be regarded as economic re-establishment. In accordance with the Supreme Court’s case law, an economic re-establishment is presumed if the legal entity embodied in the GmbH exists merely as a shell entity and is thereafter equipped with a business. This is to be considered when consciously activating a company founded in advance (shelf company), as well as in cases like the above, in which an old company is reused (shell company).

In accordance with the Supreme Court’s established case law, the shareholders are liable in case of an economic re establishment with regard to the restocking of the company assets up to the amount of the nominal capital as mentioned in the articles of association (liability for deficit balance), i.e. if the company assets at the time of the economic re-establishment do not exist in the extent of the nominal capital as provided for in the articles of association, the company assets have to be restocked up to that amount.

Moreover, the economic re-establishment has to be disclosed towards the registry court. It was previously contested in courts as well as in literature, how the liability should be arranged if the economic re-establishment was not disclosed. However, the Supreme Court did not follow the Higher Regional Court’s opinion that the shareholders are liable for loss covering for an indefinite period. Instead it ruled that in a case as the present, it depends on whether at the time of the economic re-establishment in July 2004 a deficit existed between the company assets and the nominal capital provided for by the articles of association. Since the Higher Regional Court did not make any assessments with this respect, due to its legal opinion, the dispute has been referred back for further assessment.

Remarks: The judgment should not have a big effect on the purchase of shelf companies, since usually such shelf companies have not been economically active before purchase and the risk of a liability for deficit balance is low. Nevertheless, it should be ensured that the nominal capital has been paid in prior to purchasing of the shares and that it continues to exist undiminished. Moreover, the purchaser should insist on receiving a declaration from the seller that the shelf company did not undertake any business activities prior to the date of the purchase of the shares.

The judgment has a bigger relevance for (reused) shell companies, which generally had been economically active previously, which had an effect on its capital resources. In that case, the purchaser might face a risk that unknown obligations exist, which diminish the company assets and thereby cause a deficit towards the nominal capital as provided for in the articles of association. In order to prevent a liability of the new shareholder, we recommend a careful and thorough assessment of obligations by undertaking a due diligence before purchasing such a company.

The law firm was established in 2003 by Dr. Artur Bunk, an Attorney-at-Law. Qualified in 1995, he was admitted to the Frankfurt Bar in 1997 after obtaining an LL.D. in European Law at the University Viadrina in Frankfurt (Oder). During his career he has worked with the German law firm Pünder, Volhard, Weber & Axster (now Clifford Chance), was Head of Office at Rödl & Partner in Poland, and Senior Legal Counsel at the Legal and Restructuring Department of KfW. In addition to German, he also speaks fluent English and Polish.

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This release was published on openPR.