Strict duty of loyalty for shareholders of limited liability companies and syndicate partners

Supervisory Board Limited liability company Duty of loyalty Syndicate agreement Acting in bad faith

6 Ob 155/20t

In its ruling in case 6 Ob 155/20t – CERHA HEMPEL represented a party to the proceedings – the Supreme Court made a number of important statements on the duty of loyalty that exists between the shareholders of a limited liability company who are bound by a syndicate agreement.

The ruling concerns a shareholder dispute that arose in connection with the composition of the supervisory board of a limited liability company. Under the syndicate and partnership agreement, the 32% minority shareholder of the limited liability company was entitled to appoint a member of the supervisory board, and the appointed member of the supervisory board in turn had a veto right that he/she could exercise on matters of major importance to the company.

During a corporate restructuring of the minority shareholder, the 32% shareholding was transferred to another group company; this resulted in the right to appoint a member of the supervisory board being formally – and unintentionally – lost. Several years later, the majority shareholder used this as a means to effect the dismissal of the appointed member of the supervisory board by a majority vote at the general meeting. The intention behind this move was to undermine the veto right.

The action brought by the minority shareholder was aimed at preventing this from happening and its argument was ultimately upheld by the Supreme Court: The majority shareholder had accepted the appointment of a member of the supervisory board for a period of 13 years even after the right to appoint a member had formally expired, thus creating a situation of legitimate expectation. All in all, the shareholders had worked together without any friction for almost 36 years. In such a situation, the majority shareholder is not permitted to look for legal ways and means to oust the syndicate partner and take powers away from it.

If there are only two shareholders and their mutual rights and obligations are also regulated within the framework of a syndicate agreement, the assumption must be that there are strict duties to consider the interests of the other party and thus there are also duties of loyalty, in particular in the relationship between the shareholders. This duty of loyalty to which the shareholders are subject also requires due account to be taken of the interests of the other shareholder when exercising the voting right in the general meeting. Therefore, a resolution intended to take power away from a long-standing business partner is considered to be in bad faith and is consequently null and void.

As a result, the supervisory board membership of the member who was appointed by the minority shareholder and subsequently removed in bad faith by a resolution of the general meeting is thus still valid.