“Enemy amongst the own ranks” – Dos and Don'ts when one wants to dismiss a shareholding managing director

In the beginning the cooperation between a company and its newly appointed executives is often euphoric and optimistic. In particular, companies with a small number of shareholders or in case shareholders are appointed executive directors have a tendency that said euphoria at some point of time tips over into disappointment. Disputes over business policy or different ideas regarding the role of an individual can be the cause.

As a result, a shareholding executive may turn against the interests of his or her company – e.g. by secretly establishing a competing business using the company's know how and insights. As soon as the other shareholders become aware of this they are confronted with various typical challenges. They will have to act fast in removing the disloyal executive from his office and shutting off his access to the books and records of the company. Further, other shareholders will be very much interested in amortising the shares of their rogue partner – not only from a financial perspective but also because even a disloyal shareholder still has extensive information rights.

Against this background the company has to find the right balance between a considerate tone for explaining the situation to business partners on the one hand and keeping control of the situation on the other hand.

The legal execution of said measures requires swift action. The dismissal of executives for good cause is subject to a two weeks’ notice. Evidence of the wrongdoings of the manager as well as confidential information of the company (e.g. lists of clients, price calculations, strategy papers) can only be secured through preliminary measures.

Dr Philipp Rüppell and Dr Petra Hoffmann are members of the practice group Litigation, Arbitration & ADR and specialized in the area of corporate litigation. In a recent article, published in the journal Betriebs-Berater (11/2016, pp. 645 et seqq.), they establish a guideline of the legal and factual challenges of the dismissal of executives for good cause in a German limited company (GmbH). The article corresponds with another one, which will be published as well in the Betriebs-Berater (18/2016). In this follow-up the authors will expand their guide to the topic of amortisation of the executive's shares for good cause.