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When the general meeting is not constituted as a universal meeting, the summons must be carried out as set forth in Law or the company by laws so that the constitution of the meeting is deemed valid. Specifically, article 173 of the Capital Companies Act (Ley de Sociedades de Capital – LSC), before including the obligation to publish the summons on the company’s website, established that the summons shall be published in the Official Gazette of the Companies Registry (Boletín Oficial del Registro Mercantil – BORME) and in a widely circulated newspaper in the province where the company has its registered address.
We herein analyse the judgment of the Supreme Court of 20th September 2017, which addresses the case of a joint stock company in which all of the general meetings had taken place in the form of universal meetings, up until the extraordinary general meeting which took place on 9th March 2011, and which was called via publication in the Official Gazette of the Companies Registry and in the Seville newspaper “Correo de Andalucía”.
The extraordinary general meeting which took place on 9th March 2011 was attended by the up until then joint and several administrator D. Cornelio.
The rest of the shareholders had filed a claim against the company in which they demanded the annulment of said general meeting, of the decisions adopted in the meeting, as well as any registry entries resulting therefrom. The joint and several co-administrator opposed this argument claiming that the company was in a situation of deadlock and, that accordingly, the holding of a universal general meeting, as had been done so far, was impossible. For this reason, the legal mechanism set forth in the above-mentioned article of the LSC was resorted to.
The judgment at the first instance sustained the claim because the form of summoning the disputed meeting, completely new to company practice, had the purpose of isolating the other administrator from the administration body. As a consequence, the general shareholders meeting was declared invalid, as were the decisions adopted therein.
The defendant joint and several co-administrator appealed at second instance, and the appeal was dismissed by the Provincial Court of Seville, because, as stated by the court, in spite of the meeting having been held in accordance with legal provisions, a clear abuse of rights by the joint and several administrator had taken place, due to the following reasons:
(i) It was normal, in the company, for the holding of meetings to be agreed upon verbally, which were held in the form of a universal meeting, as it did not make much sense to generate the expense of publishing the general meeting summons in the Official Gazette of the Companies Registry and in a widely circulated newspaper in the province of the company’s registered address;
(ii) The summoning administrator should have acted in good faith and communicated to the rest of the partners that the form of the summons had changed and that it had opted to follow the legally established ordinary procedure.
(iii) As this did not happen, he incurred an abuse of rights;
(iv) The rules on the summons of a general meeting contained in article 173 of the LSC have the purpose of guaranteeing that the partners are aware that the meeting is to take place and of the matters to be addressed.
(v) Finally, in the case of companies with a reduced number of partners, where direct communication is common, the exclusive use, without prior notice, of the system set forth in article 173 of the LSC, implies an unfair application thereof, with an aim contradictory to that for which it is legally intended, that is to say, it means that the other partner is not able to learn about the meeting summons and exercise his rights.
The matter reached the Supreme Court, given that the company argued that the legal requisites for the summons of the meetings are as established in article 173 of the LSC and no other. Furthermore, the company considered that in second instance, the case law of the Supreme Court had been violated given that, in cases similar to this one, the invalidity of the summons had been rejected, since bad faith and the abuse of rights on the part of the summoning administrator had not been sufficiently proven. However, the Supreme Court ratified the reasons given at second instance to declare the invalidity of the meeting deeming that bad faith and the abuse of rights had been sufficiently proven.
In spite of using the means established in the Law, if said methods are employed either abusively or in bad faith, they may be deemed invalid
Hugo Ester Laín
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16th February 2018