Sec. 179a of the German Stock Corporation Act not applicable to the limited partnership – Legal uncertainties in the purchase and sale of ships are now reduced
6 July 2022
In a nutshell: The Federal Supreme Court (Bundesgerichtshof) has eased its requirements for shareholders’ resolutions on the sale of the entire assets of a limited partnership (Kommanditgesellschaft). Sec. 179a of the German Stock Corporation Act (AktG – Aktiengesetz) is not by analogy applicable to those partnerships. For the sale of a ship by a typical single-ship entity in the legal form of a GmbH & Co. KG there is now more legal certainty in respect of the necessary participation of the partners. From the outset particular attention should be paid to the drafting of the partnership agreement and the respective clauses on the sale of the ship.
For a long time, there was disagreement in the legal commentary literature as to whether sec. 179a of the German Stock Corporation Act was applicable by analogy to limited partnerships. This was supported in particular by a ruling of the Federal Supreme Court from 1995, but has not been subject to any further supreme court rulings since. What exactly is it all about? Pursuant to sec. 179a of the German Stock Corporation Act, a sale contract by which a stock corporation (AG) undertakes to transfer the entire assets of the entity requires a supporting resolution of the general meeting with a 75% majority of shareholders’ votes. In addition, that contract must be made available for inspection by the shareholders in advance of the general meeting. Applied to a typical single-ship entity in the legal form of a GmbH & Co. KG, this would have required for the sale of a ship (usually the only material asset of the entity) that the final form of the sale contract had been approved by a shareholders’ resolution with a 75% majority. Therefore, “anticipatory resolutions”, where the final form of the agreement was not in place, did not generally meet these requirements even if they were passed with a 75% shareholder majority. If the shareholders’ resolution required according to this case law was missing, the sale contract could have been considered void, regardless of whether the buyer of the ship was aware of the absence of the shareholders’ resolution or not. Obtaining consent on the basis of the final draft of the sale contract is not always practicable in view of the usual speed of execution in such a transaction. Therefore, following completion of the sale sometimes ratifying resolutions were obtained from the shareholders.
For the limited liability company (GmbH), the Federal Supreme Court had already ruled in 2019 that sec. 179a of the German Stock Corporation Act was not applicable by analogy. The court has now repeated this statement for the limited partnership and expressly abandons the previous position from 1995. The Federal Supreme Court essentially bases this on the fact that there was no unintended regulatory gap which would justify such an analogy but a sufficient degree of shareholders’ protection was achieved under the existing regulations. How does this impact shipping and the sale of ships, in particular since single purpose entities are common to the industry?
Firstly, a consenting shareholders’ resolution will still be required as a general rule, but without the strict formal requirements of the law applicable to stock corporations. In order to carry out a transaction that goes beyond the ordinary course of the partnership’s business, the management of a limited partnership must obtain an assenting resolution from all shareholders, unless a majority decision is permitted under the partnership agreement. The obligation to transfer the entire partnership’s assets is generally considered to be a transaction beyond the ordinary course of business. An exception to the resolution requirement would only apply if the consent of the shareholders was already included in the partnership agreement. In addition, “anticipatory resolutions” should in principle be acceptable in the future, as long as the sale remains generally as set out in such resolutions.
Secondly, the Federal Supreme Court expressly emphasised that it is an essential part of business transactions that the parties can generally rely on the rules of representation registered with the commercial register. This was all the more relevant for limited partnerships with limited balance sheet transparency – as opposed to the stock corporation.
Thirdly, the Federal Supreme Court expressly left open whether an analogy to sec. 179a of the German Stock Corporation Act was also ruled out for partnerships open to the public (Publikumspersonengesellschaft) where the limited partners’ possibilities of exerting influence were as low as those of a shareholder in a stock corporation. This was not an issue in this specific case.
In summary, there is now much more legal certainty in respect of the resolution requirements for a limited partnership. Attention should be paid particularly to the drafting of the partnership agreement from the outset. However, for the adoption of resolutions in public partnerships the Federal Supreme Court has kept a loophole.