Pursuant to a recent Supreme Court decision, which confirms and clarifies earlier rulings, shareholders of an Austrian limited liability company that did not participate in a shareholders' meeting may not challenge shareholders' resolutions approved in such meeting on the grounds that attendance quorum requirements for holding a shareholders' meeting were not met.
The Act on Limited Liability Companies provides for a 10% attendance quorum for shareholders' meetings for adopted decisions to be valid. In addition, many limited liability companies' articles of association stipulate higher quorums, whereby if such contractually agreed quorums are not met, a second shareholders' meeting with lower quorum requirements (or none at all) may be held after the lapse of a certain pre-defined period.
In the case at hand, a shareholders' resolution was approved despite the fact the quorum for holding shareholders' meetings had not been met. A shareholder who did not participate in the shareholders' meeting challenged the resolution, arguing that the quorum requirement was not fulfilled and thus the resolution was invalid.
The court held that shareholders' resolutions approved without the required attendance quorum being met do not qualify as pseudo-shareholders' resolutions; nor are they null and void. Therefore, such resolutions are valid, at least initially, and may be challenged only in accordance with the general rules for voiding shareholders' resolutions. However, pursuant to these general rules and the explicit wording of the Act on Limited Liability Companies, shareholders' resolutions may be challenged only by:
- shareholders that participated in the shareholders' meeting and objected to the shareholders' resolution; and/or
- shareholders that were either denied access to the shareholders' meeting or prevented from participation due to inadequate convening of the shareholders' meeting.
Shareholders that have abstained from a shareholders' meeting for any other reason, in particular those in their own sphere, may not challenge any resolutions approved in such a meeting.
The court's line of argument for denying such non-participating shareholders the right to challenge shareholders' resolutions, even where they have relied on a quorum requirement, is rather formalistic. The court simply emphasised that the explicit wording of the act does not grant such abstaining shareholders the right to challenge a shareholders' resolution. According to the court, this does not constitute an unintended gap in the act.
It is not entirely clear whether the Supreme Court's rationale applies only to quorum requirements pursuant to the articles of association, or whether it would also apply it to the statutory 10% minimum attendance quorum requirement. Following the court's rationale, there can be no difference between statutory and other quorum requirements. Furthermore, the above decision must be understood as not distinguishing between statutory and contractually agreed attendance quorum requirements. However, in one earlier decision the court indirectly suggested that shareholders' resolutions may be null and void if not even the statutory attendance quorum has been met. The court did not elaborate on this question in detail.
In the light of the above, shareholders of Austrian limited liability companies may not rely on the protection of any kind of attendance quorum requirements. If a shareholders' meeting has been duly convened, shareholders must attend regardless of any quorum requirements. Otherwise, they risk being outvoted, even by a small attending minority.
In case of shareholder disputes, both the convention of shareholders' meetings and non-participation in such meetings (in order to avoid the quorum being met) are widely used tactics to pressure other shareholders into a compromise. Given the above Supreme Court decisions, the latter tactic to prevent or delay shareholders' resolutions may no longer be used, since attendance quorum requirements seem to have no practical effect.
Considering the court's formalistic line of argument, it remains doubtful whether a careful (re)drafting of attendance quorum requirements in a company's articles of association could help to avoid the result of quorum requirements having no practical effect. The court is apparently unwilling to broaden the right to challenge shareholders' resolutions beyond the explicit wording provided for in the act.
For further information on this topic please contact Maximilian Lang at Schoenherr by telephone (+43 1 5343 70), fax (+43 1 5343 76100) or email (firstname.lastname@example.org). The Schoenherr website can be accessed at www.schoenherr.eu.