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TOP 10 corporate law cases 2023

The "Top 10 Corporate Law Judgments 2023" summary prepared by Eversheds Sutherland partner Petra Konečná and senior associate Lola Florianova provides a clear and concise overview of key Supreme Court decisions in corporate law for 2023.

27 Cdo 1293/2023 (26 October 2023)

Consequences of the absence of the general meeting's consent to an agreement on performance of office

In this decision, the Supreme Court addressed the intricacies surrounding the concluded agreement on performance of office and concurrent employment contract within the jurisdiction of a statutory body. Adhering to settled case law, the Supreme Court has concluded that an employment contract which is negotiated alongside an agreement on performance of office is considered an amendment to the agreement. In such a case, it must be approved by a general meeting. Until the general meeting approves the agreement on performance of office or its amendment, the unapproved part is ineffective according to Section 59(2) of the Business Corporations Act. This provision takes precedence over Section 48  with regard to the consequences of the lack of approval by the general meeting of the agreement on performance of office, according to which a legal act requiring the general meeting approval is relatively invalid without such approval.

27 Cdo 1206/2022 (10. 1. 2023)

Informing individual shareholders about contract content in conflicts of interest

In this judgment, the Supreme Court summarized the main conclusions of the established case law on statutory body conflict of interest and also concluded that it is exceptionally permissible not to convene a general meeting to announce a conflict of interest. In such a case, however, the court held that it is necessary to notify the individual shareholders who agree to the conclusion of the contract or at least acknowledge it and at the same time waive the right to convene a general meeting to discuss the conflict of interest. However, it is not clear from the decision under what circumstances this exception is permissible.

27 Cdo 241/2023 (24. 10. 2023)

Content of the invitation to the general meeting in a joint stock company

According to the Supreme Court, the invitation to a general meeting in a joint stock company should, as a rule, contain clear and concise reasons for adoption, i.e. basic information regarding the reasons for adoption.

This does not mean, however, that the invitation should replace the general meeting, where shareholders will learn more detailed information and have the right to an explanation pursuant to Section 357 of the Business Corporations Act. The invitation should only indicate why a certain matter is to be decided and why in the proposed manner.

27 Cdo 238/2022 (18. 1. 2023)

Due managerial care: the general meeting's instructions to the strategic decision-making of a statutory body

The Supreme Court has reiterated that strategic decisions, which do not constitute business management, fall within the competence of the statutory body, unless the constituent acts provide otherwise. In the circumstances of this case, an investment was being made.

Under Section 51(2) of the Business Corporations Act, a statutory body can request instructions from the general meeting regarding business management. Since strategic decision-making involves more fundamental decisions than business management, the court concluded, interpreting a minori ad maius, that if it is possible to request instructions on business management, it is all the more possible to request  instructions in connection with strategic decision-making.

27 Cdo 2232/2022 (26 April 2023)

Breach of corporate loyalty

The Supreme Court pointed to the case law according to which a shareholder must follow the decisions of the general meeting, not just in form but in substance.

The purpose of liquidation is to settle assets, settle debts and distribute the liquidation balance. Therefore, if a shareholder abuses his voting rights by promoting a close person as a liquidator who unnecessarily prolongs the liquidation and does not pursue its purpose of fully settling the shareholder's loan receivables, the shareholder violates corporate loyalty.

27 Cdo 948/2022 (25 April 2023)

Partial profit allocation to ring-fenced funds

The Supreme Court dealt with the provision of the articles of association according to which profits are allocated to ring-fenced funds, which are created based on a decision of the board of directors. By law, the decision on the distribution of profits is within the competence of the general meeting. Thus, the articles of association cannot determine that the board of directors may decide on the creation of ring-fenced funds when it is not agreed what amount of money is to be allocated to those funds or to what maximum amount the relevant fund is to be filled. In effect, the allocation of profits to these funds would be left to the board of directors.

As such a decision would be contrary to the coercive provisions of the law, the decision of the general meeting regarding such an amendment to the articles of association would be regarded as not having been taken pursuant to Section 45 of the Business Corporations Act in conjunction with Section 245 and the articles of association provision would not be binding on the general meeting.

However, this would be different if they were not ring-fenced funds. In such a case, their creation could be left to the board of directors, as profits could still be distributed from them based on the decision of the general meeting.

Therefore, if the founding legal act determines that a part of profit is to be allocated to ring-
fenced funds, it must at least define the amount to which these funds are to be filled or determine what part of the profit is to be allocated to these funds and further specify the funds’ purpose.

27 Cdo 1858/2022 (16. 2. 2023)

Preliminary contract validity and transfer agreement with condition precedent

The Supreme Court stated that one deed may contain more than one legal act under Section 1727 of the Civil Code. Therefore, it is possible for a single deed to contain both (i) a preliminary contract for the transfer of a cooperative share and (ii) an agreement on the transfer of the cooperative share with a deferred transfer effect, on the condition that the execution of the contract for the transfer of the cooperative share based on the preliminary contract is not concluded by a certain time. That fact does not invalidate those legal acts.

In this context, the court reiterated that a legal act is interpreted according to the intention of the person acting, which was or should have been known to the addressee. This interpretation takes precedence over the objective meaning of the words. If such an interpretation is not possible, the interpretation which a person in the position of the addressee would normally give to it is applied. It also emphasized that the interpretation leading to the validity of a legal act takes precedence over the interpretation leading to its invalidity.

27 Cdo 955/2022 (9. 2. 2023)

Extension of the general meeting scope

The Supreme Court concluded that the decision of the general meeting to authorise a company's directors to proceed with the preparation of a project for the de-merger of the company by spin-off was valid, as the provision of the articles of association under which the decision was taken did not interfere with the business management of the statutory body and thus extended the powers of the general meeting in accordance with the coercive provisions of the law. According to the articles of association, the general meeting has the power to give instructions to the director and to approve business plans, unless they are contrary to the law.

The articles of association may therefore extend the powers of the general meeting to the extent that this does not conflict with the coercive provisions of the law. Therefore, the general meeting cannot have the authority to instruct the statutory body on the business management or any issue related to business management.

At the same time, the court stated that such a decision is not vague as vagueness cannot be confused with generality.

27 Cdo 1915/2022 (17 May 2023)

Unlimited office term of elected body members and effectiveness of extension of office terms

The Supreme Court stated that because the general meeting may dismiss members of elected bodies at any time without giving any reason and with immediate effect, it saw no reason why the length of office terms of elected body members could not be set as unlimited.

It also stated that the decision of the general meeting to extend the office terms by amending the articles of association is effective against the current and future members of the elected bodies upon its adoption or at a later moment specified in such a decision. If the decision is made by a sole shareholder, the decision is effective against the existing and future members of the bodies upon its receipt by the company or at a later moment specified.

27 Cdo 2554/2022 (18 May 2023)

Shortening elected body member office terms

The Supreme Court stated that, as is the case with the extension of elected body member office terms, the decision of the general meeting of a joint stock company to shorten office terms by amending the articles of association is effective against the current and future members of elected bodies upon the adoption of the decision or at a later moment specified in the decision.

However, if this would mean that their office term would end "retroactively", the moment of the decision, or the moment specified in the decision, is the moment of the dismissal of the elected body members.