usufruct

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Rights of usufruct related to limited partner participations in a German Limited Partnership (KG) may not be registered in the commercial register

The Higher Regional Court of Munich (OLG Muenchen) had to decide whether a right of usufruct created with respect to the participation (Kommanditeinlage) in a German limited partnership (KG) held by a limited partner (Kommanditist) can be registered in the commercial register. In its ruling of 8th August 2016 (31 Wx 204/16), the court ruled that such right of usufruct is not eligible for registration in the commercial register. Insofar it deviates from rulings of other Higher Regional Courts, which had previously come to the conclusion that such registration is possible (see OLG Stuttgart, 28th January 2013 – 8 W 25/13 and OLG Oldenburg, 9th March 2015 12 W 51/15). The following article elaborates on how to deal with the deviating court rulings in practice.

I. Facts of the case (shortened)

A father had transferred parts of his limited partner interest with a nominal value of € 45.000 each to his son and his daughter, by way of anticipated inheritance. The transfer of parts of the limited partner interest by way of singular succession had been duly applied for registration by all partners and was consequently registered in the commercial register.

Furthermore, upon transferring the limited partner interest, the father had retained a lifelong right of usufruct over the limited partner interests transferred. The right of usufruct was filed for registration as well.

The commercial register rejected the application for registration of the right of usufruct. It argued that the right of usufruct over limited partner interests cannot be entered in the commercial register as there are no provisions of statutory law requiring such registration. Even though it is possible to have facts registered in the absence of provisions requiring such registration, such possibility is only given where a substantial interest for registration exists. According to the commercial register, the existence of a substantial interest would primarily depend on the risk of the beneficiary of the right of usufruct (the “Beneficiary”) to be held liable for the limited partnership’s liabilities by third parties. As from the commercial register’s point of view such risk of personal liability does not exist, the commercial register came to the conclusion that no substantial interest for registration is given.
The complaint lodged by the applicants, as part of which the applicants argued that because of the administrative and voting rights held by the Beneficiary and his position as quasi or factual partner, a substantial interest is given, was turned down by the commercial register.

II. Decision

In its ruling of 8th August 2016, the OLG Munich declared that it was legally correct for the commercial register to refuse the registration of the rights of usufruct. The court argued that the creation of rights of usufruct with respect to limited partner interests cannot be entered in the commercial register as in absence of any regulations of statutory law requiring such registration, it is not subject to any registration requirement. Furthermore, and following the form over substance principle inherent to the system of commercial registers, a registration of the right of usufruct can also not be accepted as a “voluntary” registration as the number of “unregulated” registrations should be “kept to a minimum”. As in the case at hand, there was no inevitable need for a registration, the transparency of the commercial register must be given precedence over the informational needs of the general public.
III. Remark
The OLG Munich argues that the limited partners’ liability in external relations (which is generally limited) can never extend to a Beneficiary (of right of usufruct), which argument is in line with the prevailing opinion in the legal literature.
At the same time, however, the question of potential joint liability of the Beneficiary is still a controversial issue which has not been finally answered by the German Federal Supreme Court. There are at least good reasons to argue that a Beneficiary shall be liable jointly with the limited partners, at least and in particular where the Beneficiary - by (contractual) agreement - has retained or been granted voting rights in the ongoing affairs as well as ordinary income, with these circumstances leading to a factual position as a partner. This is sustained by the fact that a Beneficiary will be treated as a co-owner of the limited partner interest. Because until the registration pursuant to §§ 171 ff. HGB (German Commercial Code) has taken place, the limited partner is subject to unlimited liability, also a Beneficiary can have a justified (personal) interest in excluding or at least reducing the risk of his personal liability by having a similar registration effected in the commercial register.

IV. Recommendation

At least for as long as some commercial registers take the position that the creation of a right of usufruct over limited partner interests can be registered in the commercial register, the registration of the creation of such right should at least be applied for. Even if and when such application is rejected, the Beneficiary will have the opportunity to prove that – at least at the time of filing for registration – he exercised his voting and other rights with respect to the limited partner interests only on the basis of his position as a beneficiary of a right of usufruct, but not on the basis of a position as a (fully liable) de facto/quasi partner. This fact that, when taking any actions affecting the KG, the Beneficiary's only acts on the basis of the rights that he holds as beneficiary of a right of usufruct but never as partner should also be reflected in all resolutions and other acts in which the Beneficiary participates. At least until the point in time when the German Federal Supreme Court has taken a decision on a potential external liability of a beneficiary of a right of usufruct, it would seem advisable to invest extra time and efforts into the filing procedures and the documentation mentioned above.

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