Franco-German comparison: Validity of the revocation of a co-manager

German law differs from French law not only with regard to the need to provide a reason for dismissal, but also with regard to the consequences of dismissal on the status of the managing partner, as illustrated by a decision of the Riom Court of Appeal dated April 26, 2023 (no. 21/01106).

In this ruling, the Court of Appeal held that the dismissal of a co-manager of a French SARL is unjustified if the alleged breach constituting grounds for dismissal is committed by all the co-managers, and the other co-managers remain in office.

In this case, a co-manager of a SARL with three partners, all of whom were co-managers, was dismissed by a decision of the partners, notably for failure to meet his accounting obligations. The co-manager considered that his dismissal had occurred without just cause, and subsequently sued the company for damages under article L. 223-25 of the French Commercial Code.

The Riom Court of Appeal then verified the extent of the co-manager’s obligations and ruled that, as the articles of association were silent on the division of tasks between the three co-managers, each of them had the power, under article L. 221-1 of the French Commercial Code, to take all management actions in the company’s interest.

Thus, if the accounting entry was not up to date, which had never been reproached to the co-manager concerned prior to his dismissal, there was no reason to consider that this delay was exclusively attributable to the dismissed co-manager and could therefore justify his dismissal, so that he could claim damages.

This ruling underscores the need to be particularly vigilant when considering the grounds for dismissal of a SARL’s managing director, especially when the failings of which he or she is accused could, where applicable, also be attributable to co-managers who remain in office. In such a case, the fact that the dismissal is not deemed to have been motivated by just cause does not call into question the validity of the dismissal itself, but may enable the dismissed manager to obtain damages to compensate for the prejudice he has suffered.

French law differs from German law in this respect. Under German law, the rule applicable to limited liability companies (Gesellschaft mit beschränkter Haftung – GmbH) is revocation ad nutum (without just cause), as provided for in § 38 of the German Limited Liability Company Code (GmbHG). German law also differs from French law with regard to the status of the managing director: whereas under French law a managing director cannot have an “employment contract” covering his or her function as managing director, this is the rule in Germany. In practice, GmbH managing directors are usually covered by a service contract known as a “Geschäftsführervertrag” (managing director’s contract), which generally stipulates that any dismissal of the managing director automatically terminates his or her managing director’s contract.

Our Alister Avocats – German Desk team is at your disposal to provide you with cross-border assistance and expertise, so that you can take the necessary steps to comply with the new regulations under German law.