CHALLENGE OF NEGATIVE CORPORATE RESOLUTIONS FOR CONTRAVENTION OF CORPORATE INTEREST
The Judgment of the Provincial Court of Valencia (9th section), dated September 24, 2024, no. 162/2024 analyzes the conflict arising in a family-owned limited liability company divided into two shareholder blocks. Since its establishment, the administration has been joint between both groups. However, in 2020 a rupture occurs following the dismissal of the minority directors, culminating in 2023 with the replacement of the board of directors by a sole administrator.
The minority block challenged the resolutions adopted at an extraordinary general meeting in November 2022, where the majority rejected their proposal to modify the bylaws to implement a system of proportional representation on the board of directors. The action was based on the alleged violation of corporate interest and abuse by the majority, as provided in Article 204.1 II of the Corporate Enterprises Act.
The company, for its part, defended the impossibility of challenging negative resolutions and denied that the rejection of the proposals constituted an abuse of rights.
The Provincial Court dismissed the appeal of the minority block. It considered that there was no abuse of rights by the majority in rejecting the statutory modification, as the law does not require the establishment of a proportional representation system in limited liability companies. The main interest of the judgment lies in the delimitation of the regime for challenging negative resolutions.
Challenge of Negative Resolutions and the Judge’s Authority to Supplement the Will of the General Meeting
The judgment recognizes that the possibility of challenging negative corporate resolutions is a debated issue in both doctrine and jurisprudence. It mentions various previous rulings that have addressed the issue in varied situations, such as the refusal to exercise liability actions, the rejection of changing the registered office, the non-distribution of dividends, or blockages in liquidation processes.
In its reasoning, the Court adopts a favorable stance towards a broad interpretation of the challengeability of negative resolutions. It maintains that these can be subject to challenge if their rejection violates any of the causes of Article 204 of the Corporate Enterprises Act, whether by contravening legal or statutory norms, or by being contrary to the corporate interest.
Although the issue was not directly raised in the appealed judgment, the Court also addresses the judge’s authority to supplement the will of the general meeting in case of negative resolutions. While warning that this intervention should be prudent, it concludes that judges can, in exceptional circumstances, reformulate the corporate will expressed in pathological resolutions and modulate their effects.
Absence of Contravention of Corporate Interest and Rejection of Majority Abuse
Despite its favorable stance on the challengeability of negative resolutions, the Court concludes that, in this specific case, a contravention of corporate interest or an abuse of rights by the majority has not been demonstrated.
The judgment reflects the jurisprudential doctrine according to which the unjustified frustration of a legitimate expectation of the minority shareholder may be sufficient to declare the nullity of a resolution due to abuse. However, it considers that this principle is not applicable to the analyzed case. Unlike public limited companies, in limited liability companies, the participation of the minority block in the administrative body through a system of proportional representation is not protected by law nor does it constitute a legitimate expectation that is legally protected.
Furthermore, the Court emphasizes that the conflict that arose in 2020 broke the previous dynamic of joint administration, which prevents the minority from demanding the continuity of a management model based on the previous consensus. In this sense, it points out that the law does not impose on the majority the duty to share management with minority partners if it is not provided for in the company bylaws, especially in conflict situations.
Finally, it emphasizes that the refusal to approve the proportional representation system does not deprive the minority of their political rights, such as the right to attend and vote at the meeting or the possibility of exercising liability actions against the administrators.
In conclusion, the Court dismisses the lawsuit, considering that the majority’s rejection does not violate the company’s interests nor does it constitute an abusive exercise of voting rights.