Infringement of Shareholders' Attendance Rights

Schleswig Higher Regional Court (OLG), judgment of 07 February 2024 – 9 U 41/23

The right of shareholders to attend the annual general meeting (AGM) of a stock corporation is a fundamental and generally absolute membership right. It may only be restricted where this is necessary to ensure the proper conduct of the AGM.

Background

Shareholders do not have to exercise their attendance right personally, but may be represented by a proxy at the AGM. In its decision, the Schleswig Higher Regional Court had to deal with the question of the conditions under which the representative of a shareholder may be denied attendance at the AGM. Specifically, it had to decide whether the representative’s attendance at the AGM may be made dependent on the presentation of a written proxy.

Facts

In the case ruled upon by the Schleswig Higher Regional Court, the defendant, an unlisted stock corporation, and the plaintiff, a shareholder of the defendant holding 10% of the share capital, disputed the validity of various AGM resolutions that had been passed in the absence of a representative of the plaintiff.

The defendant had issued an invitation to the AGM, enclosing the agenda. On the day of the general meeting, Mr B, a lawyer, who wanted to attend the AGM as the plaintiff's representative, appeared at the entrance door to the defendant's business premises, where the AGM was to take place, shortly before the start of the meeting.

The defendant's statutes did not stipulate any special requirements for attendance of the AGM; specifically, no written proof of authorisation was required. Rather, the statutes merely stated requirements with regard to the persons who may act as agents of shareholders. Under those requirements, especially lawyers qualified. Whether the lawyer Mr B had a written proxy with him was a matter of dispute between the parties.

The defendant's board member P denied B access to the business premises. Accordingly, neither the plaintiff herself nor a proxy of hers took part in the AGM.

The lawyer Mr B had already represented the plaintiff at the previous AGM. In this context, the defendant claimed that Mr B had ‘behaved improperly’ at that AGM, in particular that he had started shouting several times and could not be calmed down by the chair of the meeting.

The Regional Court upheld the action for annulment and declared the contested resolutions null and void. The defendant appealed this judgment.

Decision of the Schleswig Higher Regional Court

The Schleswig Higher Regional Court dismissed the defendant's appeal.

The court reasoned that the plaintiff's right to attend the meeting had been infringed by unjustly denying her representative access to the AGM.

The defendant's statutes did not make attendance at the AGM dependent on registration, nor did they stipulate how the authorisation to attend the meeting or to exercise voting rights was to be proven. The statutes merely stated that all company shareholders entered in the share register on the day of the AGM or their authorised representatives were entitled to take part and vote. Mr B therefore had not been obliged to prove his authorisation to attend the meeting by submitting a written proxy. There had been no doubts about his identity as the plaintiff's authorised representative, especially since the board member P had known Mr B as the plaintiff's representative from the previous AGM. It was therefore irrelevant whether or not B had a written proxy with him. The right to attend a general meeting is the standard case under s 118 (1) of the German Stock Corporation Act (AktG) and existed irrespective of voting rights. Pursuant to s 134 (3) sentences 1 and 3 AktG, B would only have required a written proxy to exercise voting rights.

The Higher Regional Court also stated that there was no other reason that could have justified the denial of access. Insofar as the defendant referred to the alleged ‘improper behaviour’ of Mr B at the previous AGM, the purely verbal behaviour described (‘shouting’), if true, was not sufficient reason for restricting the fundamental right of a shareholder to attend and vote at the AGM. Firstly, the previous behaviour did not necessarily mean that it would be repeated at the upcoming AGM. Secondly, an AGM was not a ‘feel-good event’; it may also ‘get loud’, as long as it stays outside the scope of criminal law.

The infringement of the plaintiff's right to attend the meeting as a shareholder constituted an autonomous and definitely relevant ground for challenge within the meaning of s 243 (1) AktG. The Regional Court had therefore been right to uphold the action for avoidance and declare the contested AGM resolutions null and void.

Comments and Practical Advice

The decision of the Schleswig Higher Regional Court makes it clear that the right of shareholders to attend or be represented at the AGM can only be limited under strict conditions. Attendance may be made dependent on prior registration or special proof of authorisation to attend only if the statutes contain corresponding regulations. This also holds true for the attendance by shareholder representatives.

Disruptions by shareholders or shareholder representatives can only justify exclusion from attendance where this is necessary to ensure the proper conduct of the AGM. The fact that a shareholder or their representative has been vocal at an AGM in the past is generally not sufficient for denying attendance – as the Higher Regional Court correctly stated. The chair of the meeting must first take milder measures in the event of an actual disruption of the AGM. This includes in particular the withdrawal of the right to speak after prior warning. Only if the withdrawal of the right to speak is unsuccessful, the chair of the meeting may resort to the most extreme means and exclude the disrupting person from further attendance. Also in this case, the person must be warned first.

The unjustified exclusion of a shareholder leads to the voidability of all resolutions passed at the AGM. Extreme caution should be used when it comes to excluding shareholders during the meeting in order not to jeopardise the effectiveness of the resolutions adopted. AGM chairs must take a phased course of action against disrupters and, in particular, first withdraw their right to speak. Exclusion may only be considered if none of the previous measures has been sufficient to ensure a normal progress of the AGM. Given the above, shareholders or their representatives may eventually be denied access to the meeting right from the start only in extreme cases (unless there are formal criteria set out in the articles of association, such as proof of authorisation to represent a shareholder).

Dr. Moritz Jenne
Simon Schuler