Challenging corporate resolutions of the General Meeting

The General Meeting is the body of the company where the corporate resolutions approved by a majority are adopted. Common questions, after the approval of agreements that do not benefit the social interest of the company or individual of the specific partner, are:

Can the approved agreement be prevented from taking effect? Can we annul what was agreed by the General Shareholders’ Meeting? What can be done? to an agreement that seems unfair to us?

The minority shareholder and his particular interests find defense in our corporate regulations. Likewise, the minority shareholder can defend the interests of the company when agreements have been adopted contrary to the benefit of the company. The tool provided by our legislation to defend the corporate interest, and the particular interest of the partner or partners, is the challenging of the General Meeting and the approved corporate resolutions.

There are several basic issues that shareholders or third parties should be aware of, relating to the challenge of the General Meeting and corporate resolutions. We now detail the essential aspects:

Who has the right to challenge the General Meeting and the corporate resolutions?

The answer to this first question can be found in article 206 of the Capital Companies Law:

“Any of the administrators, third parties who prove a legitimate interest and partners who had acquired such status before adoption are entitled to challenge the corporate agreements of the agreement as long as they represent, individually or jointly, at least one percent of the capital.”

Administrators. One or more of the administrators may challenge the corporate resolutions, acting individually or collectively. It is not required that there be unanimity among them nor is there a prior majority vote in the board of directors. Any of the administrators will be entitled to request the challenge of the general meeting or of the corporate agreements.

Third parties. Persons outside the company, without owning shares or participations in the company, may request the annulment of the adopted resolution, provided they prove they have a legitimate interest.

The legislator has recognized in this way, in the Capital Companies Law of 2010, the majority doctrinal opinion and the most widespread jurisprudential orientation.

There must be a legitimate interest on the part of third parties to challenge the General Meeting or its resolutions, when it affects their personal, social or patrimonial rights. An example is the third party that has a collaboration agreement with the company whose agreement is being challenged, and the general shareholders’ meeting authorizes the administrators to undertake actions that are incompatible with that collaboration agreement.

A third party may also challenge the agreements without proving the legitimate interest if said agreement is contrary to public order.

Partners. The partners who have acquired their title before the adoption of the agreement may challenge the social agreements. It is also required that such partners, either individually or jointly, represent at least 1% of the capital of the company.

If the agreement is contrary to public order, the partner may challenge it even if he had not acquired the title prior to its approval at the General Meeting.

Which agreements can be challenged?

Article 204 of the Capital Companies Law indicates the agreements that are subject to challenge:

“Social agreements that are contrary to the Law, oppose the bylaws or the regulations of the company’s meeting or harm the social interest for the benefit of one or more partners or third parties.”

There does not seem to be a conflict when interpreting the first two causes of challenge included in the article: agreements contrary to the law or contrary to the statutes/regulations of the board. It seems obvious that the agreements cannot violate the law or the norms that regulate the company itself.

Regarding the corporate interest, section 1 of article 204 adds that the agreement will be challengeable when it is adopted in abuse of the majority, understanding as such the agreement that does not respond to a necessity of the company for the particular benefit of those who voted in favor, and to the unjustified detriment of minority partners.

What limits does the law impose for challenging agreements?

Article 204 of the Capital Companies Law imposes a series of limitations on challenging agreements that we will now list.

Valid agreements. Pursuant to paragraph 2 of art. 204 of the Capital Companies Law, the challenge of a resolution cannot be pursued when it has been replaced or has been rendered null and void by a new resolution of the Meeting.

However, this limitation does not reach the interested party who seeks the elimination of the effects or the repair of the damages produced by the agreement while it was in force. The claims made before the courts in this sense may continue their course until the damage is repaired.

Merely procedural requirements. The Capital Companies Act allows you to challenge agreements that infringe the main formal requirements that affect the General Meeting, such as the form and prior term of the call, the essential rules of constitution of the body or the system of majorities necessary for the approval of agreements. However, the agreements will not be challenged for having violated merely procedural requirements that do not enjoy special protection such as those mentioned above.

Right to information. The agreement will not be challenged due to lack of information to the partner, when said lack of information does not affect the formation of their consent for the approval of agreements.

Participation of non-legitimized people. Agreements cannot be challenged because people not authorized to do so have participated in the meeting. It is considered as an exception, and therefore it would be cause for challenge, that said participation had been decisive for the constitution of the body.

Vote counting. Defects or inaccuracies in the accounting of the votes cast for the approval of agreements will not be cause for challenge if they do not affect the result thereof.

What is the deadline for contesting?

General term. The period available to the persons entitled to challenge will be one year from the approval of the agreement. This is agreed in article 205 of the Capital Companies Act.

Notwithstanding the foregoing, we must note that the challenge of certain agreements has its own specific term established in the Capital Companies Law, so it is advisable in any case to attend to the specific case to evaluate the term to exercise the action.

Agreements contrary to public order. Agreements contrary to public order are not subject to a statute of limitations or expiration, and therefore can be challenged even if the aforementioned period has elapsed.

What procedure should be followed for the challenge?

Challenging corporate agreements must be made through a lawsuit against the company itself. Article 207 of the Capital Companies Law establishes that his prosecution must follow the procedures of the ordinary trial. In the case of a matter reserved for the commercial courts (article 86.ter LOPJ), these will be the ones in charge of hearing and resolving the matter.

José Luis Casajuana Ortiz
Partner at J. L. Casajuana and head of the international area

12/14/2016