Challenging resolutions and the non-existence of resolutions in the companies. how can shareholders’ decisions be effectively challenged?

CHALLENGING RESOLUTIONS AND THE NON-EXISTENCE OF RESOLUTIONS IN THE COMPANIES. HOW CAN SHAREHOLDERS’ DECISIONS BE EFFECTIVELY CHALLENGED?

In the day-to-day operation of capital companies – both limited liability companies and joint-stock companies – resolutions of the shareholders meeting constitute the primary instrument for corporate decision-making. However, not every resolution adopted by a shareholders’ meeting or general meeting will be valid and have legal effect. The legislator provides for mechanisms to challenge resolutions, but case law and legal doctrine have also developed a specific category of so-called ‘non-existent resolutions’. This concept has not been explicitly defined by law, but has played a significant role in the practice of corporate disputes for years. When should a shareholders’ decision be challenged through the standard procedure, and when are we dealing with a legal ‘ghost’?

CLASSIC CHALLENGING OF RESOLUTIONS UNDER THE COMMERCIAL COMPANIES CODE

If a resolution has been formally adopted but its content or the manner of its adoption raises legal or business objections, the Commercial Companies Code provides eligible parties with two basic remedies.

The first of these is an action to set aside the resolution. This is used in situations where the resolution is contrary to the articles of association or the company’s statutes, or to good practice, and at the same time harms the company’s interests or is intended to prejudice a shareholder. The second remedy is an action to declare the resolution void, which is brought where the resolution is contrary to the law, i.e. directly breaches mandatory legal provisions.

A crucial limitation of this procedure is that the right to bring such actions is restricted to a strictly defined group of parties. These include, first and foremost, the management board, the supervisory board and shareholders meeting specific criteria, such as those who voted against the resolution and, following its adoption, requested that their objection be recorded in the minutes. Crucially, challenging resolutions under the Commercial Companies Code is subject to strict, very short time limits. Missing this deadline results in the irrevocable loss of the opportunity to challenge the resolution, which – even if it was defective – remains in legal force.

NON-EXISTENT RESOLUTIONS – WHEN DOES THE DEGREE OF DEFECTIVENESS CROSS THE LINE?

Alongside traditional legal actions, there is the aforementioned concept of a non-existent resolution. The Supreme Court has clearly distinguished ‘non-existent’ resolutions from those that are merely unlawful. In its ruling of 25 August 2016 (case no. V CSK 694/15), the Supreme Court stated that:

- “Cases of non-existent resolutions constitute a category distinct from resolutions contrary to law; they are characterised by such a drastic, extreme degree of defectiveness that this justifies treating them as non-existent, and thus as having no legal effect ab initio.”  

A resolution can be said to be non-existent only where the degree of defectiveness is extreme and leads to the conclusion that, in reality, the resolution was not effectively adopted as an act of a company body. It is therefore not a matter of every procedural defect or breach of the provisions of the Commercial Companies Code, but of exceptional situations in which the resolution could not produce legal effects from the outset. This position has significant practical importance, as it limits the possibility of treating the concept of a non-existent resolution as an alternative to the standard actions provided for in the Commercial Companies Code. This helps to maintain the necessary stability of legal transactions. 

CATALOGUE OF EXTREME VIOLATIONS IN THE LIGHT OF CASE LAW

Of significant practical importance is the case law of the Supreme Court, which has repeatedly addressed the issue of non-existent resolutions, citing examples of situations justifying such a far-reaching classification. In its judgment of 12 December 2008 (case no. II CNP 82/08), the Supreme Court emphasised that: 

- “A resolution adopted by persons who are not in fact shareholders does not exist.”  

- “A resolution of the shareholders is non-existent where the shareholders’ meeting was convened spontaneously by a group of shareholders without following the required procedure, with the exception specified in Article 231 of the Commercial Code (now Article 240 of the Commercial Companies Code).”  

- “A resolution is non-existent if the quorum necessary for its adoption was not present, the resolution did not obtain the required majority of votes, the voting results were falsified, the resolution was recorded in the minutes without a vote, or the resolution was adopted on a matter not included on the agenda.”  

- “In accordance with the general rules concerning non-existent legal acts, a resolution of the shareholders is non-existent where physical coercion was used against the shareholders, the resolution was adopted jokingly, or the content of the resolution is incomprehensible and its meaning cannot be ascertained by way of interpretation.”

The above position of the Supreme Court allows for a clearer distinction to be drawn between defective resolutions, which may be subject to a standard challenge under the provisions of the Commercial Companies Code, and resolutions which, due to the scale and nature of the breaches, cannot be regarded as existing in a legal sense at all. 

LEGAL PROTECTION PROCEDURE: THE COMMERCIAL COMPANIES CODE VERSUS THE CODE OF CIVIL PROCEDURE

Classifying a resolution as “non-existent” opens up a completely different regime of legal protection, in particular based on an action for a declaratory judgement under Article 189 of the Code of Civil Procedure. This fundamentally distinguishes this construct from the classic remedies for challenging resolutions provided for in the Commercial Companies Code. 

Whilst actions under the Commercial Companies Code aim to establish new legal relationships (the court sets aside the resolution or annuls it with retroactive effect), a judgment issued under Article 189 of the Code of Civil Procedure is of a declaratory nature. In such proceedings, the court does not set aside the resolution, but merely authoritatively confirms the state of affairs that existed from the outset – namely, the fact that the resolution in question never came into being and did not produce any legal effects.

An equally crucial difference concerns time limits and standing to sue. A standard challenge is subject to strict time limits and is available only to a limited number of entities within the company’s structure. By contrast, an action to declare a resolution as non-existing under the provisions of the Code of Civil Procedure may be brought by anyone who demonstrates a so-called legal interest in seeking such a declaration. Most importantly, this action is not subject to any limitation period and may be brought at any time.

SUMMARY

The choice of the appropriate legal instrument depends directly on the nature and scale of the irregularities and errors that have occurred when the resolution was adopted. Whilst classic actions under the Commercial Companies Code serve to eliminate defective resolutions, the institution of a non-existent resolution based on Article 189 of the Code of Civil Procedure constitutes the ultimate safeguard. It allows for the effective neutralisation of the effects of gross abuses, protecting the company from actions which, in reality, should never have become part of commercial transactions.

Michał Bonisławski