Challenging a General Meeting Resolution of a Czech s.r.o.

The general rules on the invalidity of a general meeting resolution are in Section 258 et seq. of Act No. 89/2012 Coll., the Civil Code (the “CC”). The conditions on which invalidity may be invoked, and the class of persons entitled to invoke it in a limited liability company, are set out in Section 191 et seq. of Act No. 90/2012 Coll., on Business Corporations (the “BCA”). That class is defined in order to prevent abuse of the remedy, which could otherwise threaten the stability of the company. In a limited liability company, invalidity may be invoked by any shareholder, and also by a managing director, a member of the supervisory board where one exists, or a liquidator. Note that the previous law also allowed an insolvency administrator to do so; the current law does not. Although case-law holds that standing is assessed as at the moment the decision is announced — so that a petitioner who loses, during the proceedings, the position that gave them standing loses standing as well — the court must consider the petitioner's legal interest in the declaration, so that a company cannot simply rid itself of the person invoking invalidity, for instance by removing a managing director. The defendant is always the company whose general meeting adopted the contested resolution.

Grounds and forum

The action is brought before the regional court in whose district the defendant company has its seat (Section 9(2)(e) and Section 85a in conjunction with Section 85(3) of the Code of Civil Procedure). It may be based only on conflict of the resolution with the law, with the articles of association or founding deed, or with good morals. If a minority shareholder simply disagrees with a resolution that conflicts with none of those, the court will not grant the petition. Invalidity is most often found where the meeting was improperly convened, or where the decision-making process was flawed — for example in assessing the quorum or the validity of a power of attorney to represent a shareholder at the meeting.

Equally, a court will not declare a resolution invalid where doing so would substantially interfere with rights acquired in good faith by third parties. That interference need not necessarily be connected with the resolution whose validity is being decided.

The protest: the step most often forgotten

A very important duty of a shareholder, and one sometimes overlooked in practice, is to raise a protest at the general meeting and to have it recorded in the minutes. A protest is an indispensable condition of successfully invoking invalidity: a shareholder present at the meeting who does not protest, or whose protest is not recorded in the minutes because they did not ask for it, will not succeed with the action. The court will take account only of the grounds the shareholder stated in the protest and may not consider others, even where those others would otherwise render the resolution invalid. That does not mean the shareholder must give the legal classification of the grounds; it does mean the protest must say where the invalidity is said to lie and set out all the material circumstances. A shareholder who did not attend the meeting, and so could not protest, may invoke invalidity without more, provided the other statutory conditions are met.

Time-limits

Under Section 259 CC, invalidity may be invoked only within a subjective period of three months and an objective period of one year. The subjective period runs from the day the person entitled learns, or could have learned, that the general meeting adopted the resolution; the objective period runs from the day the resolution was adopted. Both are preclusive, and the action must reach the competent court within them. Although Section 191 BCA lays down special rules on the length and running of the periods for decisions taken per rollam and for the subsequent exercise of a voting right, the length and starting point correspond to the general rule in Section 259 CC.

Proportionality

In reviewing a resolution, the court must have regard not only to the interests of the shareholder and other protected persons invoking invalidity, but also to whether a declaration of invalidity would have disproportionate consequences for the company or for others, and whether it could threaten the company's stability. Under Section 260(1) CC, the court will not declare a resolution invalid where the contested resolution has no serious legal consequences, even though it conflicts with the law, the articles of association or good morals.

Case-law referred to: Supreme Court, Nos. 31 Cdo 1704/98, 29 Odo 657/2001, 29 Cdo 4722/2009; Supreme Court resolution of 16 June 2010, No. 29 Cdo 3082/2009.