Enforcement of the Dismissal of Director per Interim Legal Protection

Can the dismissal of a company's director be enforced by means of an interim injunction? OLG Brandenburg answered this question on December 19, 2018 (re 7 U 152/18). A temporary injunction is an interim court ruling when quick legal protection is objectively needed. While a normal litigation case can take up to several years until the hierarchy of all courts has been topped, a temporary injunction comes inside very few weeks.

Enforcement of the Dismissal of Director per Interim Legal Protection

Bild von Gerd Altmann auf Pixabay

Dismissal of Director

The parties to this lawsuit were shareholders in a GmbH and each held 50% interest. The defendant was also the sole director of the GmbH. In the course of their cooperation there was a dispute between the parties. The plaintiff then decided in a shareholders' meeting, convened by himself, to recall the defendant as director of the GmbH. The defendant appealed against the decision by bringing an action for annulment. The plaintiff, in turn, requested interim relief against the defendant, asking that he be prevented from exercising his management powers. The plaintiff was unsuccessful both in his initial application, and later in appeal proceedings before the OLG Brandenburg.

Invalid Shareholders Assembly

The OLG Brandenburg argues that the shareholders assembly was incorrectly summoned and consequently the defendant's dismissal was invalid. Accordingly, the dismissal cannot be enforced in interim proceedings.

Remark

The judgment of the Higher Regional Court of Brandenburg recalls the considerable importance that can be attached to interim legal protection in connection with the dismissal of GmbH directors. A director will often defend himself against his dismissal; a legally binding clarification of the effectiveness of the dismissal will be typically made only after a longer period. The affected GmbH can then try only in the context of interim legal protection to enforce the effects of the dismissal of the GmbH director - but only provisionally. Conversely, the director may try to secure the continuation of his activity - also provisionally.

Strict requirements have to be met for a temporary injunction on the dismissal of a director to be issued. The dismissal must be made formally effective through a summary hearing, and the dismissal must be substantively justified. If there is a special provision included in the articles of incorporation for an individual to hold the position of director, the dismissal may, for example, only be for important cause. In addition, there must be some extenuating circumstance which creates a special urgency in the situation. These so-called "grounds for dismissal" exist only in exceptional cases; for example in emergency or dangerous situations as well as in cases which threaten the existence of the corporation. It may not be the interests of the director or of the company which are the focus of attention.

If these strict conditions are met, the court has a wide array of possible judgements to hand down. A director's managerial powers may be limited (for example, by reducing a single power to a joint power of representation) or even completely withdrawn. There may also be prohibitions on access or inspection rights for the director, or the court appointment of an emergency manager.

Related Articles:

Liability of Director not Knowing of Bankruptcy when the Cause is not in his Competence

Giving Notice as Managing Director of a Corporation