Summary
- The BGH found that a limited partner’s right to information can also include information on the management by thegeneral partner, in particular concerning the implementation of the object of the partnership. This decision is important for the energy sector in that wind farms are often operated in the form of a limited partnership. The Court’sdecision is also based on such a situation.
- The right to information pursuant to section 166(3) German Commercial Code is subject to there being goodgrounds for this. According to the case law of the BGH, good grounds are deemed to exist if the limited partner’s interests are not sufficiently safeguarded by way of a right of inspection laid down in a contract or arising from section166(1) German Commercial Code and there is over and above this a risk of the limited partner or partnership beingharmed.
- The suitability, necessity and scope of the information to be provided depend on the grounds. When decidingwhether and to what extent information is to be provided, the partnership must weigh up the limited partner’s interest in obtaining the information, on the one hand, and the interests of the partnership, on the other.
II. Background
The rights to information of the limited partner of a limited partnership are laid down in section 166 German Commercial Code. According to the ordinary right to information specified in section 166(1) German Commercial Code, the limited partner can request a copy of the annual financial statements and check whether these are correct by inspecting the books and records. Section 166(2) German Commercial Code makes it clear that the limited partner does not however have the same rights to information as a general partner excluded from the management. Finally, section 166(3) German Commercial Code provides for an extraordinary right to information. The information specified in section 166(3) German Commercial Code is provided further to an order by a court issued upon application by the limited partner, provided that there are good grounds for this. According to the wording of section 166(3) German Commercial Code, this covers the provision of a balance sheet and annual financial statements or other clarifications as well as the provision of the books and records. Previously, the question was whether the extraordinary right to information was limited only to issues in connection with the annual financial statements or whether the phrase “other clarifications” also covered other information. The Hamm Higher Regional Court (ruling of 22 August 2005 - 15 W 219/05) and the Munich Higher Regional Court (ruling of 5 September 2008 - 31 Wx 63/07) ruled - in line with the prevailing opinion in the legal literature - on the basis that if good grounds exist, general information about the management of the general partner and the documents of the partnership pertaining thereto may also be requested. In contrast, the Cologne Higher Regional Court (ruling of 17 October 2013 - 18 Wx 8/13) assumed that the provision only covered information in connection with the annual financial statements.
III. The BGH’s decision
The applicant in the appeal on a point of law before the BGH was the limited partner of a limited partnership, the object of which was inter alia to construct and operate wind turbines. The respondent was the general partner of this and other limited partnerships with the same object. The applicant initially asked the Aurich Local Court to order that information be provided pursuant to section 166(3) German Commercial Code as to why the object of the limited partnership in which it had a stake had not yet been implemented - contrary to what was the case for the other limited partnerships. The Aurich Local Court (ruling of 11 May 2015 - 14 II 50/14) rejected the application and the Oldenburg Higher Regional Court (ruling of 18 June 2015 - 12 W 117/15) dismissed the subsequent appeal as unfounded.
In the appeal, the BGH found that the right to information pursuant to section 166(3) German Commercial Code is not restricted to issues in connection with the annual financial statements. Instead, if there are good grounds for this, the limited partner’s right to information can also extend to the management by the general partner, in general, and the documents of the partnership pertaining thereto.
The BGH bases this on the wording, underlying system and purpose of as well as the background to section 166(3) German Commercial Code:
(i) The BGH starts by taking the view that the ordering of “other clarification” represents options for providing information over and above the sources of information that are explicitly specified. It argues that the fact that the provision of information can be requested at any time also militates against there being a connection to the annual financial statements.
(ii) Looking at the underlying system of the law, the Court emphasises that section 166(3) German Commercial Code and section 166(1) German Commercial Code are independent of one another. Section 166(1) entitles the limited partner to request a copy of the annual financial statements and to check whether these are correct by inspecting the books and records. The Court notes that if the provision of information were to be restricted to information in connection with the annual financial statements, it would make more sense to link this right to the procedural enforcement of the right arising from paragraph 1. The fact that the provisions are in two separate paragraphs indicates that there is no such connection. This applies in particular also because the right pursuant to paragraph 1 is enforced by way of civil proceedings, whereas in the case of paragraph 3, legal proceedings under the German Act on Proceedings in Family Matters and in Matters of Non-contentious Jurisdiction have to be instituted.
(iii) Looking at the matter from a historical point of view, the BGH argues that the deliberations regarding the predecessor act to the German Commercial Code, the relevant provisions of which were incorporated essentially unchanged into the German Commercial Code, make it clear that a too restrictive interpretation of the right to information, in particular limiting this to inspecting the books, was not intended.
(iv) According to the BGH, the purpose of section 166(3) German Commercial Code is to make a distinction between the right to information of a limited partner and that of a general partner excluded from the management. According to the Court, this distinction lies purely in the fact that the limited partner requires good grounds in order to obtain the information, whereas a general partner excluded from the management can obtain the information without such grounds pursuant to section 118 German Commercial Code.
However, the BGH expressly points out that section 166(3) German Commercial Code does not establish a general right to information and inspection. According to the BGH, from the outset only those rights to information and clarification that are appropriate and reasonable for enforcing rights under the partnership agreement or for safeguarding legitimate interests of the limited partner are to be granted. The BGH maintains that, in this regard, the extraordinary right to information is restricted by the limited partner’s need for information, which arises from the good grounds. For this reason, according to the BGH, the limited partner cannot make use of such right to try to achieve measures that are matters of the day-to-day management, either.
Therefore, it is the “good grounds” that constitute the key prerequisite for the granting of the extraordinary right to information. The Court states that good grounds are in any case deemed to exist if the limited partner’s interests are not sufficiently safeguarded by way of a right of inspection laid down in a contract or arising from section 166(1) German Commercial Code and there is over and above this a risk of harm. According to the Court, good grounds are to be assumed, in particular, if it is necessary to monitor the management in the interest of the limited partner. This is the case, for example, if there is a threat of harm to the partnership or limited partner. The limited partner must in these cases set forth specific circumstances demonstrating the necessity and importance of the information, i.e. at least a substantiated lack of confidence in the management.
According to the BGH’s decision, the suitability, necessity and scope of the information to be provided also depend on the asserted good grounds. In this regard, the considered need of the limited partner for information must be weighed up against the interests of the partnership.
Gleiss Lutz commentary
There has at times been considerable uncertainty about a limited partner’s right to information because of the varying opinions held by the Higher Regional Courts. This uncertainty has now been removed by this decision. The Federal Court of Justice has now made it clear that limited partners may demand general information on the management by the general partner and the documents of the partnership pertaining thereto. This is to be welcomed.
However, the restrictions imposed by the BGH are equally important and welcome. The need for good grounds emphasised by the Court prevents any unrestricted use of the right to information. The example for good grounds put forward by the BGH, i.e. a threat of harm to the partnership or limited partner, will no doubt be followed by other examples borne out in practice. In any case, specific circumstances indicating the necessity and importance of the information - and therefore a substantiated lack of confidence in the management - must of course exist and be demonstrated.
The weighing up of the considered need of the limited partner for information on the one hand and the interests of the partnership on the other as ordered by the BGH to determine the suitability, necessity and scope of the information ensures that the conflicting interests are duly taken into account. The significance of this order must not be underestimated, as the partnership will in practice undoubtedly often have a legitimate interest in maintaining confidentiality, especially if it has a large number of partners.
Proposed citation: Bauer/Jeschke, BGH grants limited partner right to information about management, Gleiss Lutz Energy News #9/2017 dated 24 May 2017
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