CONTENTS CORPORATE LAW NEWSLETTER I FEBRUARY, 2017 I DIRECT CHALLENGEABILITY IN COURT OF THE RESOLUTIONS OF A BOARD OF DIRECTORS 2 II NATIONAL LEGISLATION 5 III EUROPEAN LEGISLATION 6 IV NATIONAL CASE LAW 7 NEWSLETTER I CORPORATE WWW.CUATRECASAS.COM NEWSLETTER I CORPORATE LAW 2/8 CORPORATE LAW NEWSLETTER I DIRECT CHALLENGEABILITY IN COURT OF THE RESOLUTIONS OF A BOARD OF DIRECTORS Disputed since the new Commercial Companies Code entered into effect, the issue of the admissibility of directly challenging the resolutions of a board of directors remains a moot point. Indeed, the growing importance of company boards of directors, appearing as the hub for the most important decision-taking, leads to a corresponding need to hold directors accountable, as well as to facilitate inquiry into their actions It is already agreed that it is admissible to challenge the resolutions of a board of directors. As expressed in the recent Judgment of the Coimbra Appeal Court of 15 December of 2016, “it is by no means acceptable that in no event can an invalid resolution taken by a board of directors be challenged, since this would imply granting corporate boards exclusive power to protect the rights of shareholders. The consequence of this would be that, if the shareholders are not informed of the nullity, the questionable resolution and its effects would be perpetuated in the legal order without the injured parties being able to bring legal proceedings, an interpretation which, at the very most, we believe to be of doubtful constitutionality”. The question raised is different: whether challenging the resolutions of a board of directors in court requires a prior challenge within the company, or whether, on the other hand, it is independent from such challenge. It should be noted that this question has already reached the Constitutional Court, as demonstrated in the Judgment of 24 September 2003, which analysed to what extent it can be considered an abuse of the “right of access to courts interpreting Article 412 of the Commercial Companies Code as meaning that the direct challenge of a resolution of the board of directors of a public limited company is not admissible, the interested party being required to request the annulment or declaration of nullity of that resolution from the general meeting of that company, after which the resolution of the general meeting as regards that request can be directly challenged”. Concluding that access to courts was not prevented – nor hindered at all – the Constitutional Court gave a negative response to the question raised. Let us analyse the legal framework. In an (atypical) provision that is unusual in a number of respects (Coutinho de Abreu, Governação das Sociedades Comerciais, p. 130), Article 412.1 of the Commercial Companies Code only envisages means of challenging within the company: “the board itself or the general meeting may declare the nullity or voidability of questionable resolutions taken by the board, at the request of any director, of the supervisory board or of any shareholder with voting rights, within one year from knowledge WWW.CUATRECASAS.COM NEWSLETTER I CORPORATE LAW 3/8 of the irregularity, but not if more than three years have elapsed since the date of the resolution”. Paragraph 3 of the same article states that “the general meeting of the shareholders may (…) approve any voidable resolution of the board of directors or replace the resolution that is void with its own resolution, provided it does not concern matters that for which the board of directors has exclusive competence”. It follows from this provision that it is possible to challenge a resolution within the company. No mention being made of judicial inquiry, case law has analysed the need for this prior internal appeal. The most recent judgment on the subject (the abovementioned Judgment of the Coimbra Court of Appeal of 15 December 2016) opted for the direct challenge – in the position that we believe to be sustainable and is adopted by most significant Portuguese legal theory, as well as by the closest legal systems. Nevertheless, national case law has given quite varied opinion on the subject in question, summarise, in essence, as follows: It is always possible to take action through a court requesting a declaration of annulment or the cancellation of resolutions of a board of directors. A challenge in court only does not depend on a prior challenge within the company when the resolution taken by the board of directors occurred in the context of: a) A delegation of powers by the general meeting; or b) Usurpation, by the board of directors, of powers of the general meeting. The challenge in court depends on a prior resolution of the general meeting or of the board of directors itself on the invalidity, the purpose of the suit being the latter. Let us see. First of all, we consider unfounded the literal argument put forward by some judgments that require a prior resolution (e.g. Ac. TRL of 13 March 2014 and Ac. TRC of 20 April 2016): “the simple formulation of Article 412.1 appears to mean that, at least in principle, the procedure to be followed by any director who intends to claim the nullity of a resolution of the board shall be that provided for therein”. Indeed, it appears clear that the absence of a reference to direct challenge is due only to the fact that this is already acquired, under general terms, and it is not necessary for the legislature to recall that possibility in the regulations concerning the nullity of resolutions of company boards. Quite to the contrary, the letter of the law indicates an intention to extend responsibilities with a view to ensuring effective control of the actions of the executive board. In this respect, see, for example, Ac. TRP of 27 June 2011 and Ac. TRC of 15 December 2016. Article 412.3 of the Commercial Companies Code provides another important interpretative indication, when it states that the general meeting may replace a void resolution of board of directors with a resolution of its own, provided it does not concern matters that are the WWW.CUATRECASAS.COM NEWSLETTER I CORPORATE LAW 4/8 exclusive responsibility of that body. In this case, in which the subject of the resolution is a matter that is the exclusive responsibility of the board of directors, the impossibility of prior intervention by the general meeting is therefore flagrant (cf. Ac. TRP of 28 September 2010). From this it can only be concluded that the legislature did not intend in any way to exclude the admissibility of a challenge under general terms, but instead envisaged a procedural substitution to streamline the case, where this is more beneficial. Moreover, it must be recalled that, under the general terms of civil law, any external interested party may invoke the nullity of the resolution, and this can be declared of its own motion by the court. Is there, therefore, sufficient justification for a limitation on shareholders’ legal capacity to claim nullities? It should also be noted that a view contrary to bringing direct legal proceedings is especially dangerous for minority shareholders. It is true that legal restrictions on calling general meetings are not applicable here, since Article 412 of the Commercial Companies Code envisages that any shareholder with voting rights may ask the general meeting to declare the nullity or annulment of a resolution taken by the executive board. It should not be forgotten, however, that it is very unlikely for a general meeting to declare the nullity of a resolution at the request of a minority shareholder, due to the normal correspondence between the majorities in the board of directors and in the general meeting. However, with the Constitutional Court itself (in the Judgment referred to above) admitting that this is unlikely, it is difficult to justify the imposition of a prior review that, in most cases, will be unnecessary, leading to a twofold disruption of the company’s daily life – it must not be forgotten how much time is lost in calling a general meeting on these terms1 . Moreover, in an argument advanced by Ricardo Falcão2 and Coutinho de Abreu3 , challenge of a subsequent resolution of a general meeting does not imply the same effects as the claim of direct nullity of a resolution of a board of directors: indeed, a court will only give an opinion on the defect that this resolution may present – which may not even exist. Finally, a warning must be given about the risk of impeding the precept of the injunction for suspension of corporate resolutions provided for in Article 380 et seq of the Code of Civil Procedure, which envisages that a shareholder may request, within 10 days, that the execution of resolutions be suspended. This time limit is counted, in principle, from the date of the meeting in which the resolutions were taken. However, since the injunction depends on a main lawsuit (in this case, a lawsuit to declare the nullity of the resolution), if this is not admissible before a resolution of the general meeting, the former will be hindered at the very least. 1 As Menezes Cordeiro wrote, “to leave a nullity suspended, awaiting a general meeting, only to bring legal proceedings after that meeting is to extend, without any benefits, the uncertainty intended to be prevented” (Manual de Direito das Sociedades Comerciais, p. 792). 2 Da impugnação judicial direta das deliberações do conselho de administração, p.329. 3 Op cit., p. 139. WWW.CUATRECASAS.COM NEWSLETTER I CORPORATE LAW 5/8 It can be concluded, therefore, notwithstanding desirable legislative intervention to clarify the issue once and for all, that it is legally admissible to make use of alternative means to challenge the resolutions of the board of directors. The shareholder must have the autonomy to decide the best way to protect its interests given the specific situation and may even make simultaneous use of the two legal means at its disposal (in the case of a favourable resolution of the general meeting, the corresponding lawsuit is extinguished since the decision is no longer needed (inutilidade superveniente da lide), as provided for in Article 277(e) of the Code of Civil Procedure. II NATIONAL LEGISLATION Ordinance no. 48/2017 - Diário da República no. 24/2017, Series I of 2017-02-02 Labour, Solidarity and Social Security Ordinance that determines the amendments to the agreement between ANESM - Associação Nacional de Empresas de Serviços de Merchandising (National association of merchandising services undertaking) and FETESE - Federação dos Sindicatos dos Trabalhadores de Serviços (Federation of trade unions of service workers). Ordinance no. 55/2017 - Diário da República no. 26/2017, Series I of 2017-02-06 Labour, Solidarity and Social Security Ordinance that determines the amendments to the agreement between APED - National association of distribution companies and FEPCES- Portuguese Federation of Unions of Trade, Offices and Services and others. Resolution no. 81/2017 - Diário da República no. 26/2017, Series II of 2017-02-06 Presidency of the Council of Ministers - High Commission for Migration, I. P. - Office of the High Commission for Migration Creates the Financial Management Section, in the Funds and Financial Support Team. Order no 1306/2017 - Diário da República no. 27/2017, Series II of 2017-02-07 National Defence – Minister’s Office Delegation of Powers to the Army Chief of Staff - Bulk purchases of road fuels. Order no 1307/2017 - Diário da República no. 27/2017, Series II of 2017-02-07 National Defence – Minister’s Office Delegation of powers to the Air Force Chief of Staff - Bulk procurement of road fuels - Diesel, petrol and LPG in mainland Portugal. WWW.CUATRECASAS.COM NEWSLETTER I CORPORATE LAW 6/8 Resolution of the Assembly of the Republic No. 19/2017 – Diário da República No. 31/2017, Series I of 2017-02-13 Parliament Recommends that the Government promote wide-ranging debate on the impact of the Comprehensive Economic and Trade Agreement. Ordinance no. 69/2017 - Diário da República no. 34/2017, Series I of 2017-02-16 Economy Approves the obligation of the SoLR of the National Electricity System of electricity produced under the special regime that benefits from guaranteed remuneration, to deduct the amounts received by power plants that benefitted cumulatively from support for the promotion and development of renewable energy through other forms of public support. III EUROPEAN LEGISLATION Rectification of the Commission Implementing Regulation (UE) 2016/1821 of 6 October 2016 Amending annex I to Council Regulation (EEC) No 2658/87 on the tariff and statistical nomenclature and on the common customs tariff. Commission Delegated Regulation (EU) 2017/208 of 31 October 2016 Supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards for additional liquidity outflows corresponding to collateral needs resulting from the impact of an adverse market scenario on an institution’s derivatives transactions. Opinion of the European Economic and Social Committee 2017/C 34/15 On the “Proposal for a Regulation of the European Parliament and of the Council on cooperation between national authorities responsible for the enforcement of consumer protection laws” (COM (2016) 283 final — 2016/0148 (COD)) Opinion of the European Economic and Social Committee 2017/C 34/21 On the “Report from the Commission to the European Parliament and the Council on unfair business-to-business trading practices in the food supply chain” (COM (2016) 32 final). WWW.CUATRECASAS.COM NEWSLETTER I CORPORATE LAW 7/8 Judgment of the Court of Justice (Second Chamber) of 29 September 2016 Case C-492/14, 2017/C 46/02 Request for a preliminary ruling from the Nederlandstalige rechtbank van eerste aanleg te Brussel — Belgium) — Essent Belgium NV v Vlaams Gewest, Inter-Energa and Others (Reference for a preliminary ruling — Regional legislation requiring the distribution, through the systems located in the region concerned, of electricity produced from renewable energy sources to be free of charge — Different treatment depending on the origin of the green electricity — Articles 28 EC and 30 EC — Free movement of goods — Directive 2001/77/EC — Articles 3 and 4 — National support mechanisms for the production of green energy — Directive 2003/54/EC — Articles 3 and 20 — Directive 96/92/EC — Articles 3 and 16 — Internal market in electricity — Access to distribution systems on nondiscriminatory tariff conditions — Public service obligations — Lack of proportionality). IV NATIONAL CASE LAW Judgment of the Supreme Court of 7-12-2016 Although the parties only agreed that the benefit of the challenged tax assessment was awarded to the assignors of the private share, by the same logic, the benefit from the compensatory interest must also be granted to the assignors. Judgment of the Court of Appeal of Guimarães of 15-12-2016 I. The exclusion of a partner from a private limited company based on the alleged failure of the partner to comply with its entrance obligation (defaulter) can be made by mere corporate resolution, without a need for intervention by the Court (Article 204; cf. Article 241.1 of the Commercial Companies Code). II. The conclusion of point I) is maintained, if even the company in question has only two shareholders (bipessoal), in which case the corporate resolution taken in these circumstances is not null and void. 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