The Commercial Court upheld the action to challenge the resolution of the Shareholders Meeting that authorized the directors of a limited liability company to devote themselves, on their own or on behalf of another, to the same, similar or complementary type of activity as the one constituting the corporate purpose, based on the infringement of the duty of abstention of the voting right established in the current Article 230 of the Capital Companies Act, by understanding that three partner companies of the firm were affected by a conflict of interest, whereby they should have abstained from voting on such resolution.
In Second Instance, the Madrid Provincial Appellate Court revoked the ruling, dismissing the suit by understanding that the three shareholder companies were not affected by any conflict of interest with respect to the authorization to the three joint directors to undertake such activity, which would prevent them from voting on the mandatory resolution in the shareholders meeting.
Lastly, the Supreme Court overturned the appeal ruling and confirmed the First Instance ruling, considering that the current Article 230 of the Capital Companies Act prohibits directors of the company from devoting themselves to such activity, barring express authorization from the company, by means of the resolution from the General Meeting, since the current Article 190 of the Capital Companies Act provides that “the shareholder may not exercise voting rights corresponding to his equity shares (...) when, as director, the resolution refers to the exemption from the non-competition clause”.
Although, in principle, in order for a conflict of interest to occur that excludes the vote of the shareholder, the latter must be the director exempted from the non-competition clause, the truth is that the duty of abstention is applicable if the conflict of interest exists with respect to the shareholder as well as if it exists with respect to the person specifically exercising the voting right. This interpretation of the Supreme Court endeavors to avoid the corporate conflict of interest caused when, during the vote on the resolution to exempt the director from the noncompetition clause, the affected director himself takes part, either because he is the shareholder that is directly exercising the vote, or because he is acting as the representative thereof. The relevant point is that whoever holds the outside corporate interest in conflict with corporate interest cannot take part in the vote.