Which bodies can make decisions?
This article is about the legal validity of decision-making in the private limited liability company. A private limited liability company has several bodies. A Management Board, a General Meeting (GM) and possibly also a Supervisory Board (SB), a Joint Meeting of Management Board and SB and, since the introduction of the Flex-BV, in appropriate cases, a BGA (a “Special” Group of Shareholders). These bodies are authorized to make decisions. The division of powers is determined by law, articles of association, regulations and resolutions. Within the bodies, agreements can be made on how decisions should be made. For example, in a shareholder agreement or voting agreement. For more information on the shareholder agreement I refer to previous articles on this website.
When is decision-making invalid?
It is important that valid decision-making is achieved. This is not always the case. Mistakes can be made in decision-making. For example, that those entitled to vote within the body, such as shareholders during an AGM, are not properly invited to the meeting at which the decision is taken. Or that the chairman of the body puts a proposal to a vote when the required quorum is not present. In such cases, the status of the resolution must be questioned. Is the decision valid, void or voidable? And if there is a defect in the decision-making process, can the defect be repaired? And what are the consequences if it turns out that a decision cannot be repaired and is therefore voidable or voidable?
Nullity and voidability of decisions
Nullity of decisions
There is an important difference between nullity and voidability of decisions. When a decision is void, it applies by operation of law. Nullity is a sanction that relates to the violation of fundamental requirements of a decision. Consider, for example, the aforementioned case of a quorum requirement not being met. Also consider the situation where the chairman of the GM fails to take into account an enhanced majority of votes, for example 75%. In these cases, the consequence is that the resolutions are null and void, meaning that the resolution never actually existed.
Destroyability of a decision
A voidable decision is valid until it is set aside by the court. The annulment has retroactive effect. It is not possible to nullify resolutions out of court. Examples of voidable resolutions are failure to observe the correct notice period of the AGM or incorrect inclusion of items on the agenda for the meeting. In principle, the sanction of such cases is nullification. Unlike nullity, these are non-fundamental creation provisions. Sometimes there are repair options by which the voidability of a resolution can be removed.
Case law: two directors vote on behalf of one shareholder
In the ruling of the Gelderland District Court dated May 18, 2022, there was a special situation. During the general meeting of Chainpoint B.V., two persons claimed to be able to validly cast a vote on behalf of one of the (legal entity) shareholders, JZ Investments B.V.. The two persons cast conflicting votes. The chairman of the general meeting then declared JZ Investments B.V.’s vote invalid in its entirety and marked it as ‘not cast’. The resolution to be voted on was eventually passed, but only the votes of the other shareholder were counted, and therefore not JZ Investments B.V.’s vote.
What is the role of the chairman of the AGM?
In the court’s opinion, the chairman mishandled this situation. It is not up to the chairman to give a legal interpretation to the situation that has arisen. This follows from the law, namely Article 2:13 paragraph 3 of the Civil Code. The chairman has a limited role. Although the opinion of the chairman of the general meeting is decisive when it comes to counting the votes cast, it is not decisive when it comes to assessing the validity of the votes cast. However, a chairman could be expected to signal if there are conflicting explanations of votes and to raise this, for example with reference to the law, articles of association, regulations, resolutions or other contractual agreements.
Is the decision of the AGM voidable?
In the proceedings before the court, the chairman did give a decisive legal opinion on the outcome of the vote. The chairman declared the votes cast on behalf of JZ Investments B.V. invalid in their entirety. This while one vote of the two votes cast may have been legally valid. It would have been in the chairman’s power to adjourn the meeting so that clarity could have been obtained about the casting of the vote. The parties would then have had the opportunity to present the issue to a judge. Unlike the chairman of the AGM, the Enterprise Chamber or the Court of Preliminary Relief does have jurisdiction to decide on the validity of the decision-making. The conclusion of the court is that the resolution passed during the AGM, whereby the vote of shareholder JZ Investments B.V. was declared invalid, is in violation of Article 2:15 paragraph 1 of the Dutch Civil Code under a. The resolution has been nullified and the nullification has retroactive effect.
Advice on decision-making within corporate bodies
The situation described above could have been avoided. For example, if the articles of association or shareholders’ agreement of JZ Investments B.V. had included a provision on representation in the general meeting of Chainpoint B.V. Perils regarding decision-making can lead to a period of uncertainty within a company and also result in a waste of time and money. It is therefore important that you seek proper advice on how decision-making can take place within a corporate body.
Do you have questions about the validity of decision-making in a limited liability company or any other legal form? If so, please contact Justin de Vries or one of our other corporate law specialists.
