Legal framework
Facts
Decision
Comment
The Supreme Court(1) recently had the opportunity to comment for the first time on the prerequisites under which a board of directors is obliged to place an item requested by a shareholder on the agenda for a general meeting. The court further had to deal with the question of whether a company's articles of association may impose certain restrictions on a board's competence to delegate the management of the company's affairs to third parties.
Legal framework
Pursuant to Article 699(3) of the Code of Obligations, one or more shareholders which together represent shares with a nominal value of at least Sfr1 million (according to the prevailing Swiss doctrine, shareholders which hold at least 10% of the share capital) may demand that an item be placed on the agenda for a general meeting. In their bylaws, Swiss companies are at liberty to reduce the requirements for shareholders to demand that items be placed on the agenda (eg, reducing the statutory threshold of Sfr1 million).
An Article 699(3) request must be submitted to the board of directors in writing and must include the proposed item and the motion. Shareholders which make use of their right to request that an item be placed on the agenda must submit their request sufficiently far in advance for the board to include the proposed item in the invitation to attend the general meeting.
Where a board of directors fails to grant a request that meets these formal requirements, a court may, at the request of the concerned shareholder(s), order a general meeting to be convened and compel the proposed item be placed on the agenda and put to a vote (Article 699(4)).
Facts
A Swiss company engaged a third party to manage its assets. In an 'investment management agreement', comprehensive rights were granted to the asset manager – in particular, the rights to:
- manage the company's assets in line with the defined investment strategy;
- sign contracts on the company's behalf; and
- take all other necessary measures in order to achieve the company's strategic goals at the discretion of the asset manager.
The agreement provided that the asset manager had to report on the performed asset management activities to one or more members of the company's board of directors.
A shareholder which owned 36.76% of the company's share capital requested that an item be added to the agenda – that the asset manager engaged by the company must meet the same independence criteria as the company's external auditor. The chairman informed the requesting shareholder that the proposed item, which would initiate an amendment to the articles of association if passed, violated mandatory provisions of Swiss stock corporation law. Consequently, the request was denied.
Decision
First, the Supreme Court had to reason whether a delegation of management powers to the asset manager had occurred via the conclusion of the investment management agreement or whether the agreement qualified as a simple mandate agreement.
The court reasoned that the company's purpose was to buy and sell stakes in other companies. By concluding the investment management agreement, the company had delegated the management of its assets to a third party. The court held that the content and purpose of the agreement corresponded with the company's purpose and that it went beyond the scope of a mandate agreement. The court concluded that a delegation of the management of the company's affairs, according to Article 716(b) of the Code of Obligations, had occurred. The court held that the agreement met the requirements of written organisational regulations; the concluded agreement did not necessarily have to be denominated as an organisational regulation.
Second, the court had to rule – for the first time – whether a board is permitted, under certain circumstances, to refuse to include an item requested by a shareholder on the agenda. The court reasoned that a board of directors is not obliged to add an item to the agenda when it clearly does not fall into the competence of the general meeting to vote on the item. However, if there exists any doubt surrounding the competence of the general meeting to vote on a proposed item, the request must be granted.
In the present case, the board of directors refused to place the proposed item on the agenda. The court had to decide whether the shareholder's request was lawfully denied by the board. In order to do so, the court had to delimit the companies' governing bodies' spheres of competence.
The court reasoned that the crux of the matter lay in the question of whether the general meeting could adopt a provision in the articles of association which puts the competence of delegation granted to the board under Article 716(b) of the Code of Obligations under certain restrictions. The court determined that the competence to delegate the management of the company's affairs might be put under certain restrictions. Pursuant to Article 716(b), the board's competence to delegate the management of the company's business to third parties must be stipulated in the articles of association. Therefore, the court argued that, as the delegation competence must be stipulated in the articles of association, the delegation competence can be subject to certain conditions or limits set forth in the articles of association, following the ad maiore ad minus (from greater to smaller) principle.
Comment
The Supreme Court confirmed the prevailing doctrine and took the opportunity to specify in more detail the requirements under which a board of directors is obliged to place an item on the agenda on request by shareholders.
Requests submitted by shareholders to the board in accordance with Article 699(3) of the Code of Obligations (provided that the formal requirements are met) must be granted by the board, even in cases where there are uncertainties whether it is within the competence of the general meeting to vote on the proposed item.
A request can be denied only on the merits in cases where it is, prima facie, evident that the general meeting is not competent to vote on such an item (ie, in cases where a corresponding resolution would become null and void).
For further information on this topic please contact Markus Dörig or Alexandra Bösch at BADERTSCHER Rechtsanwälte AG by telephone (+41 44 266 20 66), fax (+41 1 266 20 70) or email ([email protected] and [email protected]).
Endnotes