Under the Commercial Code, a shareholder may not vote when a decision is being made concerning their release from an obligation or liability, grant of consent for transfer of their shareholding, concluding a transaction between the shareholder and a private limited company, pursuing a legal dispute with the shareholder or reviewing actions by them or their representative as a member of the management board or supervisory board. Determination of representation will not take into consideration the shareholder’s votes. Of course, these restrictions on voting rights do not apply if a company has only one shareholder. The Commercial Code also establishes the same principle with respect to public limited companies and their shareholders.
In practice, however, the question has arisen whether the voting rights of a shareholder are also restricted if votes are being cast on concluding a transaction or pursuing a legal dispute not with the shareholder in person but with a party connected with the shareholder, for instance, a company in which the shareholder is a shareholder or a member of its management body, or both. The law does not explicitly restrict the voting rights of a shareholder if votes are being cast on concluding a transaction or pursuing a legal dispute not with the shareholder in person but with a person connected with the shareholder. Under this principle, restrictions on the voting rights of a shareholder have been implemented in practice to a greater or lesser extent.
That said, the Supreme Court has taken a position on restrictions on the voting rights of a shareholder when it comes to transactions between connected persons in its judgment No. 3-2-1-144-11 of 10 January 2012 . Amongst other things, this judgment discusses whether a shareholder in a company has voting rights if votes are being cast concerning pursuit of a claim by the company against a debtor of the company and if the shareholder in the company is also the sole shareholder of the debtor of the company.
In this judgement, the Supreme Court took the view that if a shareholder in a company is the sole shareholder of a debtor of the company and thereby has control over the activities of the debtor, then that individual’s financial interests as sole shareholder of the debtor may conflict with the interests of the private limited company. In the assessment of the Supreme Court, this violates the principle of company law under which shareholders have to be guided above all else by the interests of the private limited company when making decisions concerning the private limited company, not their private interests or the interests of a company controlled by them.
As a result, the Supreme Court took the position that the Commercial Code has to be interpreted so that, in addition to the constraints explicitly cited in the law, a shareholder must also not vote when a decision is being made whether to pursue a legal dispute with a company in which he or she is the sole shareholder, and whether to designate a representative in that legal dispute, and that in such an event a conflict of financial interest between the shareholder and the company has to be presumed.
In light of the Supreme Court’s position, it cannot be ruled out that the courts will begin to implement restrictions on the voting rights of shareholders under the Commercial Code even more expansively, extending it, amongst other things, in addition to companies where the shareholder holds 100% of shares also to other persons connected to the shareholder or to persons whose activities the shareholder controls directly or indirectly. In terms of implementing restrictions on voting rights, it should probably be estimated whether there is or may be a conflict of financial interests between the shareholder and the company. Thus, in practice it should be taken into consideration that if a shareholder has voted in a conflict of interest situation, the court may set about interpreting restrictions on the shareholder’s voting rights expansively and that, in the end, the votes of the shareholder may be disregarded when a decision is made.