In a previous article we dealt with the defective and non-existent decisions of the Board. But what are the conditions of invalidity? In the present article we will look into the relevant procedural conditions.
Standing to Bring an Action: The Claimants
Those who are entitled to rely on defects of the decisions of the Board of Directors are many. We will refer to the two important categories: (a) decisions with substantive defects (art. 95 §1) and procedural defects (art. 95 §2) as well as (b) those that resemble decisions of the shareholders’ General Assembly (art. 95 §4). For the first category, special arrangements are provided (art. 95 §3). For the second, the corresponding provisions for the decisions of the General Assembly (art. 137 and 138) apply by analogy. In more detail:
Who can Invoke Invalidity of Decisions With Substantive & Procedural Defects
With regard to the specific defective decisions of the Board of Directors, the persons entitled to invoke their nullity are:
(a) The members of the Board individually
The power of the members of the Board of Directors to invoke the invalidity of its decisions seems both reasonable and obvious. The members of the Board of Directors are responsible for what the body has decided and, therefore, they have every reason to want to maintain the legality of the Board and to avoid all liabilities. In fact, their right to challenge the decisions in question exists whether or not they participated in the (defective) decision (see related Memorandum to law 4548/2018 on art. 95). Those who voted against the problematic decision are entitled, in any case, to invoke any invalidity. However, those who voted in favor can do so as long as they do not operate in a contradictory and abusive manner (281 CC).
The Board of Directors, however, is not entitled to invoke, collectively as a body, potential invalidity.
(b) Third parties (shareholders or non-shareholders)
Third parties (shareholders or not) may retain the right to invoke any invalidity. Under the condition, however, that they justify a personal and special legal interest (art. 95 §3 section a) and, in this context, damage to their personal interests.
Moreover: “… (as is also the case in the case of direct damage) the shareholder or the third party has an individual right of protection and will have a legitimate interest to invoke the nullity of the decision… but not with reference to the corporate interest and the expediency of the management judgment of the Board of Directors ” (therefore the control of the decisions takes place in the light of other provisions, i.e. 102) “…but with reference to the harm that they personally and directly suffer” (: Petition Ex. Law 4548/2018, on the article 95). Correspondingly, that is, to their standing to bring an action in order to claim the direct damage they suffer from acts of the Board of Directors (1214/2021 Supreme Court, 1298/2006 Supreme Court, NOMOS Legal Database), likewise, they can invoke the invalidity of a decision of the Board “…which damages them personally and directly (e.g. the Board of Directors decides not to pay a dividend, which was legally decided by the General Assembly to be paid)”.
Beneficiaries of Invoking of Decisions Simulating General Assembly Decisions as Null/Invalid
For the restrictively mentioned, in the law, decisions that are similar to decisions of the General Assembly (art. 95 §4), the provisions on defective decisions of the General Assembly (art. 137 and 138) shall apply by analogy. In this context, the annulment of the decision of the Board of Directors (art. 137) can be invoked by a shareholder representing at least 2% of the capital. And so can each member of the Board of Directors, individually. On the contrary, any person, shareholder or third party who has a relevant legal interest to invoke nullity (art. 138).
In this case the invocation (and proof) of the shareholder status is enough. Proof of personal, special, legitimate interest is not required, as is required in decisions of the Board of Directors with defects of substance or procedure.
Ex officio Audit
Lastly, any invalidity of a Board decision can be taken into account ex officio by the court. Provided that it is a continuous violation of legal provisions of a mandatory nature. In this case, the illegality of the decision can also be invoked by the shareholders, regardless of whether they are personally and directly harmed (art. 95 §3 in fine). A justifiable reason is the fact that it is intolerable for the shareholders to perpetuate an illegal situation in the SA and for them to be unable to react (see Memorandum of Law 4548/2018 on Art. 95).
Invocation Deadline
The Rule
The possibility of invoking the invalidity (or annulment) of a Board decision cannot exist in perpetuity. The relevant deadlines vary.
(a) Regarding decisions with a defect in substance (95 §1) or procedure (95 §2): The relevant appeal can take place within six months from the entry of the contested decision in the SA minutes book (according to art. 93). If, however, it is a decision to be published, the six-month long deadline starts from its registration in the Business Registry (according to art. 12).
(b) Regarding decisions that are similar to decisions of the General Assembly (95 §4): The deadlines applicable to defective decisions of the General Assembly shall apply proportionally. In particular, with regard to annullable decisions (137), any action to annul them is required to be brought within a four-month period. Whereas, as regards the invalid ones (138), the invocation of the invalidity is subject to a short period of time. The deadlines, in both cases, start from the taking of the relevant decision of the Board of Directors. In other cases, from the moment it is published to the Business Registry – as long as it is a decision to be published.
The Exception
In the event that the decision of the Board of Directors results in a continuous violation of provisions of mandatory law, the invocation of any invalidity is not subject to a time limit (art. 95 §3 section b and 138 §4).
Competent court
The competent court (in terms of matter and place) for adjudicating cases concerning defective decisions of the Board of Directors is the Single-Member Court of First Instance of the company’s registered office. This is provided by a special regulation (95 §4) for the case of decisions that resemble decisions of the General Assembly (95 §4) and the legal consequence of their defect is annulment (137). We should, however, accept a corresponding competence (according to the correct point of view, see art. 3 §1) for all other relevant cases as well.
If, moreover, different competences were accepted (Multi-member and Single-member Court of First Instance of the company’s headquarters), we would be led to a division of competences. Specifically, lawsuits against decisions of the Board of Directors, the reality of which would probably be reviewed both in the light of annulment and invalidity, should be brought to the Single-Member and Multi-Member Court of First Instance respectively. Which is illogical.
Interim Measures
With regard to the decisions of the Board of Directors that are similar to those of the General Assembly, there is no doubt as to the possibility of recourse to interim measures (art. 95 §4, 137§11 & 138§7). The same goes, in the opinion we adopt, also in the cases of decisions with defects of substance (art. 95 §1) or procedure (art. 95 §2).
Disclosure Requirements
The court decision, which recognizes any invalidity of the decision of the Board of Directors, should be published in the Business Registry, since the said decision is subject to publicity (art. 95 §5). This regulation follows the spirit of the articles on defective decisions of the General Assembly (art. 137 §12 and 138 §8).
Third Party Protection
On defective decisions of the Board of Directors (it should be accepted that) protection is provided for bona fide third parties (no. 95 §6 and 86 §§2 and 3) with regard to all defective decisions (as it is argued: even the non-existent ones). Provided that they have been published and rights have been created in favor of third parties.
Consequently, the flaw in the decisions of the Board of Directors cannot be suggested against third parties in order to avoid, e.g., contractual obligations on the part of the company.
The members of the Board of Directors of the SA must operate within the framework of what the law, the statutes and the decisions of the General Assembly define (a topic that will concern us in our next article). Reasonably, according to a logical sequence, decisions of the Board of Directors that go beyond the specific limits can be challenged by its members and third parties-shareholders or not). The relevant conditions and deadlines derive or are inferred from the law. However, the legal decision-making and their wording in a way that guarantees the rights of the SAs, the shareholders and, of course, the members of the Board of Directors themselves, is of priority.
Stavros Koumentakis
Managing Partner
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (February 26th, 2023).
Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.