4.6 Conclusion

Although there is no requirement to restrict the transfer of shares in a GmbH, nearly every GmbH has included transfer restriction clauses in its articles of association. Consequently, one of the ingredients for a lockup of a shareholder is present. With respect to every GmbH strict capital maintenance rules apply, which limit the ability of a GmbH to distribute profits and to purchase own shares.

Ever since the GmbHG exists, a winding-up remedy has been in place. A GmbH can be wound up by the court if there is an important reason to do so. Holders of at least 10% of the shares in the capital of a GmbH are entitled to initiate winding-up proceedings. The winding-up remedy is of a mandatory nature.

The notion of an important reason to wind up the company is open-ended. In principle, only important reasons stemming from the company's affürs may lead to a winding-up. The impossibility to achieve the purpose of the company is an example of an important reason. An important reason is also present if a serious and incurable deadlock between the shareholders is present. With respect to these two types of categories the German winding-up remedy runs parallel to its English counterpart.

Similar to the English winding-up remedy, the winding-up remedy is a measure of last resort. Less far-reaching measures bar the application of the winding-up remedy. In Germany, these less far-reaching measures are the expulsion remedy, the oppression remedy and a buy-out offer at full market value.

Unlike the English unfür prejudice remedy, the German oppression remedy is not found in statute. Even though the oppression remedy has not been enacted, its existence is undisputed in case law and legal literature. The oppression remedy is regarded as one of the shareholder's mandatory and inalienable rights. If there is an important reason to exit the company, the shareholder may claim his exit without intervention of the court. Subsequently, the company may either purchase the shares or withdraw the shares or allow third parties to purchase the shares. A shareholder has no claim against his co-shareholders or other third parties. In contrast with the German oppression remedy, onder the unfür prejudice remedy English courts almost exclusively order coshareholders to buy out the minority.

Due to the Jack of a statutory foundation of the oppression remedy, legal authors have searched for a dogmatic foundation of the remedy. Some authors have drawn a parallel between terminating long-term contracts and exiting the company. Other legal authors have argued that the exit right of members of an association or the duty of loyalty underlies the oppression remedy. There is no communis opinio on the legal foundation of the oppression remedy.

The openly phrased notion of an important reason to exit the company is mostly given shape in legal literature, because case law on this topic is quite rare. Several categories can be discovered. First, the German oppression remedy can be used if the shareholder is exposed to additional obligations, which endanger his future economie advance. Secondly, an exit is possible if remaining in the company can no longer reasonably be expected of the shareholder, provided that he is locked up and approval for the transfer of his shares is repeatedly refused. Thirdly, a shareholder is allowed to exit if he does not consent to a fundamental change of the company. This fundamental change may involve the increase of the share capital in combination with the risk of deficiency liability. This fundamental change may also involve a significant change of the objects clause or extension of the business activities. Fourthly, an exit right is available to the outsider-shareholder if the GmbH is integrated in a corporate group. Fifthly, a shareholder may exit if he is frozen out. Remarkably, German literature also acknowledges an exit right if a shareholder has a personal urgent need of money or is chronically

An important reason to exit the company may stem from the company's affürs, but may also stem from personal affürs, such as illness or an urgent need of money. Under the English unfür prejudice remedy, only conduct in the company's affürs is relevant. Even though the company's affürs are liberally interpreted, these do not include personal affürs, such as illness or an urgent need of money.

If there is an important reason, a shareholder can claim his exit against the company without court intervention. Contrary to the German exit right, the English unfür prejudice remedy can only be started in court. In Germany, capital maintenance rules may form a serious hick-up for the enforcement of the exit right against the company. In addition, even if capital maintenance rules do not bar the exit right, a company that does not cooperate with the exit right may create a difficult situation. There has been a fierce debate on how the exit right can be enforced in court. Unfortunately, there is no consensus on this topic. This presents a serious impediment to the effectiveness of the German oppression remedy.

When using the oppression remedy, in principle the shares have to be valued at full market value, representing the pro rata part of the value of the company as a going concern. The discounted cash flow method is mostly used. A decrease in the value of the shares due to oppressive conduct of the majority shareholder is not taken into account when valuing the shares. The shares are valued with reference to the date of the exit notice of the shareholder.

The articles of association may limit the financial compensation offered to the minority shareholder in order to preserve the status quo of the company. Nonetheless, valuation clauses should not result into a significant imbalance between the actual value of the shares and the value of the shares based on the valuation clause. A valuation clause creating a significant imbalance at the outset (when the articles of association are drafted) is null and void. A valuation clause creating a significant imbalance afterwards can be reinterpreted further to the principle of good faith.

German law offers a quite coherent system of appraisal rights. The appraisal rights are available in the event of a legal merger, a cross-border merger and a legal demerger involving an entity that is not a GmbH. An appraisal right is also available in the situation of conversion of a GmbH into another legal form. A shareholder that does not consent to one of the aforementioned types of reorganization is allowed to exit. Again, capital maintenance rules may put a spoke in the wheel for the shareholder that desires to exit.

If a dispute arises between the shareholder using the appraisal right and the company about the level of compensation offered, the shareholder can start proceedings governed by a specific statute on appraisal right proceedings. If an amicable settlement is feasible during these proceedings, the court has to promote this opportunity. According to the leading opinion, it is most appropriate to have the shares valued at full market value. The date on which the reorganization becomes final serves as the valuation date.

Many German legal authors have rejected the idea of an exit right at will. Several arguments are used, such as the pacta sunt servanda argument and the argument that the exit right at will entails a risk of blurring the hierarchy between creditors and shareholders. In addition, authors pointed to the risk of arbitrary use of the exit right. An exit right at will may cause instability of the capital of the company or may even cause withdrawal of investments on a larger scale. Moreover, the minority shareholder may abuse the exit right at will by constantly threatening to use it. Consequently, the majority rule may be undermined. Lastly, the exit right at will is not in line with the usual aim of shareholders at the outset to keep the investors locked in. The firm rejection of the exit right at will by the German legislator and German legal authors is in line with the firm rejection of the exit right at will in England.