29.06.2020
Consequences of the nullity of corporate resolutions
Before examining the two resolutions on the effects of the invalidity of a social agreement, it is worth bearing in mind several preliminary questions.
Por
González Varadé, Patricia What agreements are actionable?
According to law:
- Those agreements that are contrary to the law
- Agreements opposing the articles of association or the rules of the Board of directors
- Agreements damaging the social interest for the benefit of one or more partners or third parties.
It is understood that an agreement injuring social interest, without causing patrimonial damage, is imposed in an abusive way.
An agreement is abusive when it is adopted by the majority in its own interest and to the unjustified partners disadvantage.
For these purposes, please note that an agreement cannot be challenged when:
- has been terminated
- or validly replaced by another adopted before the action was brought.
Neither shall it be possible to contest agreements when these grounds are invoked:
1.- The infringement of procedural requirements for the call or constitution of the Board or for the adoption of the agreement. Exceptions: when it is an infringement on:
- the format and the deadline for the call;
- the essential rules for the constitution of the Board;
- or the majorities required for the adoption of resolutions, as well as any other relevant ones.
2.- The incorrectness/insufficiency of the information provided by the company in response to the exercise of the right to information before the meeting.
Exceptions: if the incorrect/unprovided information was essential for the exercise of the right to vote.
3.- The participation in the meeting of non-legitimated persons, unless such participation was decisive for the constitution of the Board.
4.-The invalidity of one /several votes or an erroneous counting unless the same were decisive for the majority required.
What is the deadline for contesting?
The action to contest the social agreements expires within one year. However, when the agreements are contrary to public order, the action will not expire nor will it be time-barred.
The deadline will be counted from:
- the date of adoption of the agreement of the copy of the minutes if the agreement had been adopted in writing. (And from the reception date)
- If the agreement has been registered, the period of expiry will be calculated from the date of registration.
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Loyalty shares
Who is entitled to contest?
- any of the Directors;
- any third party demonstrating a legitimate interest;
- the partners who have acquired such status before the adoption of the resolution.
Provided that they represent, individually or jointly, at least one percent of the capital.
The Articles of Association may reduce the percentages of capital indicated. Shareholders who do not reach these percentages will be entitled to compensation for the damage caused to them by the opposed agreement.
What procedure should be followed?
The procedures of the ordinary proceedings and the provisions contained in the Civil Procedure Act will be followed.
Effects of the positive judgment
In accordance with Article 208 of the Corporations Act:
- A final judgment declaring the nullity of a registrable agreement must be entered in the Commercial Register.
- In the event that the disputed agreement is registered in the Commercial Registry, the judgment will also determine the cancellation of its registration and the subsequent entries that are contradictory to it.
With the consequences of the nullity of a Board agreement, we present two cases that have been analyzed.
The first of these, Judgement no. 2417/2019 of the Second Instance Barcelona’s Court, of 23 December 2009.
APPELLANT: THROMBOTARGETS EUROPE, S.L.
APPELLEE: WAVECREST PROJECTS, S.L.
Decision appealed against: Judgment
Date: 27 February 2019.
Applicant: WAVECREST PROJECTS, S.L.
Defendant: THROMBOTARGETS EUROPE, S.L.
Basis of the conflict:
On 31/10/08, the plaintiff acquired from another partner, some shares of the defendant, which represented 9.15% of the capital. When the defendant was notified of the transfer of the shares, it was not admitted as a shareholder by the defendant company.
This recognition was made effective by a judgment dated 14/7/11 of the Commercial Court No. 4 of Barcelona.
Whereas the claimant was not considered a partner, capital increase agreements were adopted, diluting it to 4.96%.
The consequence of such declaration of nullity was, at least, the nullity of the extensions that had been agreed in the aforementioned meetings. The defendant became the debtor of all those who had participated in the capital increases, after having made the corresponding contributions.
VINCI TRUST, S.L., unrelated to the defendant, acquired shares from two companies in September 2009, requesting the company’s authorization for this acquisition.
This board-meeting was declared null and void in a ruling dated 29/4/13 by Barcelona’s Mercantile Court 10.
The plaintiff requests the annulment of these shareholders’ meetings. She claims that VINCI, after the meeting authorizing its acquisition of the shares, could not attend the meetings because it was not a shareholder.
Court’s assessment.
The question is whether the acquisition of VINCI, after this annulment of the meeting, produced any kind of effect.
The key is that since the meeting in which the acquisition of VINCI was authorized, the applicant has not exercised its pre-emptive subscription right, even after learning of the invalidity of the authorization already granted.
The nullity is decreed:
- At no time has the company been required to act according law.
- A meeting was called in which a final decision was taken on whether to ratify the annulled authorization given at the annulled meeting.
- To request that the preemption for shares acquisition being recognized. Claim that was not made.
The invalidation of the authorization does not mean that the authorization is refused, as the refusal only occurs when the relevant legal requirements have been observed.
Denial requires an express decision by the Board. This means that the identity of one or more shareholders or third parties acquiring the total number of shares must be communicated “to the transferor through a notary public”.
This nullity, according to the Barcelona Provincial Court, is equivalent to the lack of authorization by the company, to which the LSC responds.
It does not matter that the meeting authorizing the transfer of shares was annulled. The nullity of the agreement makes it ineffective, non-existent and nothing prevented the company from adopting a measure denying the transfer, once the nullity of that meeting was known.
The defendant allowed things to remain as they were, maintaining VINCI’s status as a partner, and VINCI was accepted as a partner of the defendant. No formal offer was made by the defendant to acquire the shares acquired by VINCI.
The second case analyzed is the Resolution of 20 December 2019 of the General Directorate of Registries and Notaries.
The following are relevant facts:
The Commercial Court number 1 of Oviedo, declared null the agreements of the general meetings of the company “Laminados de Aller, S.A.” of 15/9/14 and 1/12/14. The agreement that was declared null and void was an operation to reduce the capital by offsetting losses and simultaneously increasing capital.
This judgment was confirmed by the Provincial Court of Asturias, in its ruling of 20 March 2018. The reduction of share capital to zero and simultaneous increase violated articles 293.1 and 343 of the LSC.
In order to execute the final ruling and regularize the situation, the partners in a Board-meeting approved the replacement of the agreement of reduction and simultaneous increase without resolving subsequent agreements already registered, regarding the share capital.
The Registrar bases its refusal to register on the fact that the resolutions adopted, relating to the situation of the share capital existing on 15 September 2014, must necessarily contain a pronouncement as to the effects that the declared nullity has on certain subsequent entries.
The DGRN determines that a company can ratify, rectify, replace or revoke “ad nutum” previous agreements. It may do so during the pendency of the impugnation process or at the conclusion of the same by a final judgment.
The problem is that, in our law, the existence in company of two levels, the contractual and the organizational, cannot be ignored. Also that the successive organizational acts adopted by the society, once it is declared null, must be validated or regularized. How? In accordance with the rules and principles of the corporate law. With full respect for the principle of legal certainty contained in Article 9.3 of the Constitution.
The Supreme Court states “that article 6.3 CC is not transportable to the causes of nullity of the LSA. In any case, jurisprudential doctrine has been recommending “extreme prudence and flexible criteria” in the application of radical nullity.
It is precisely the third-party protection, which is closely connected to legal security and safe business, the one that requires the different profile of nullity in company law from the one given by the nineteenth century legislator in the Civil Code (of radical profiles as is well known);
The DGRN confirms the registrar’s decision not to register the replacement agreement. The company’s situation with respect to other affected (subsequent) acts and relationships must be regularized.
If this article has been of interest, we also suggest you to read the following article published on our website:
The effectiveness of shareholders’ agreements
Guide to Shareholders’ Meetings: Limit Situations
