How can GmbH managing directors preserve the company’s ability to act?

Written on 25 Mar 2020

With confirmed cases of coronavirus infection on the rise, German limited liability companies (GmbH) need to be able to maintain their day-to-day business operations even in the absence of key personnel. They may need to establish structures to protect employees and business operations while being able to respond quickly in these dynamic times.

To ensure that a company will remain capable of acting externally and internally, a company should take certain precautionary measures. Traditionally, German law distinguishes between (i) the representation of a GmbH vis-à-vis third parties (externally) and (ii) the corporate governance within the GmbH (internally). The following recommendations distinguish between these two perspectives.

Representation of the company externally (Vertretung im Außenverhältnis)

General power of representation: Are there enough designated personnel who could represent the company and step in during the absence of other legal representatives?

  • Consider whether (i) to appoint additional managing directors (in particular if the company currently only has one managing director) or (ii) to equip further key persons with the general commercial power of representation (Prokura) or commercial authority to act (Handlungsvollmacht).
Note: certain tasks, such as the initiation of insolvency proceedings, can only be performed by managing directors so that the appointment of further managing directors may be advisable.

Joint or sole power of representation: Are there enough designated personnel who could represent the company and step in during the absence of other legal representatives?

  • Consider whether managing directors have the power of joint representation and whether they should be granted power of sole representation instead in order to be prepared in case individual managing directors are absent due to illness.
Note: Only the shareholders’ meetings can grant the managing directors power of sole representation. The managing directors themselves (without a decision by the shareholders’ meeting) may authorise each other to represent the company alone in individual transactions or in certain types of transactions.

Specific powers of representation: Are day-to-day operational processes assigned to the relevant persons and have those persons been granted tailored powers of representation (for example, in the form of a general commercial power of representation (Prokura), a commercial authority to act (Handlungsvollmacht) or a power of attorney (Vollmacht))?

  • Consider whether to issue specific / tailored powers of representation to additional employees.

Conclusion of contracts remotely / electronically: Are processes in place to enable the conclusion of contracts, placing of orders and issuing of invoices remotely or electronically to closely manage liquidity and operational readiness?

  • Consider whether IT infrastructure is enabling working remotely, in particular from home.

Governance within the company (Geschäftsführung im Innenverhältnis)

Coronavirus taskforce: Is there a taskforce in place specifically established for the coronavirus crisis, combining expertise, communication and decisions?

  • Consider whether constitutional documents place restrictions around delegating certain tasks to specific bodies.
Note: Overall responsibility remains with managing directors, together with an obligation to oversee the structures and procedures in place (if certain functions are delegated to levels below the managing directors).

Decision processes remotely / electronically: Are procedures in place that allow taking also material decisions remotely / electronically?

  • Consider whether constitutional documents permit the holding of shareholders’ or board meetings without physical presence, for example by way of conference call or written circulation procedure (Umlaufverfahren); or whether for physical meetings decision makers have designated proxies in place so that important resolutions can still be adopted despite illness and/or quarantine.
Note: The amendment of articles of association requires notarisation.

Digitalization of information: Is physical and digital information regarding material decisions or day-to-day business organised and stored in a way that such information will be readily available to the relevant designated persons?

  • Consider whether access to such information should be made readily available, in particular in relation to to bank accounts, safe deposit boxes, important contracts, such as financing agreements, and other essential files (including, for digital information, the relevant passwords).