Who is authorized to convene a general meeting?

In its resolution file no. 7 Cmo 498/2016, dated 27 April 2018, the High Court in Prague addressed the question of whether an executive director can delegate the decision to convene a general meeting to a third party, concluding that this is not possible. 

The case involved a company with two shareholders, each holding a 50% share. Both also served as executive directors. The general meeting was convened by a lawyer authorized by one of the executive directors, with the agenda including the removal of the other executive director from office for breach of duties. The second executive director cancelled the general meeting and—assuming it would not be held—did not attend.

However, the general meeting took place and the executive director was removed from office. He then filed a motion to declare this resolution invalid, arguing, among other things, that it had been convened by an unauthorized person. 

To begin, the High Court in Prague noted that at the time the general meeting in question was held, or rather when the motion for a review of its validity was filed, there was no complete clarity in legal theory regarding the person authorized to convene the general meeting of a limited liability company, see the publication by Holejšovský J. Valné hromady společnosti s ručením omezeným. Prague: C.H.Beck. 2011 pp. 78-81. 

The High Court in Prague then adopted the conclusion that the person authorized and, under certain circumstances, obliged to convene the general meeting at the relevant time was the executive director of the limited liability company, as also stated in, for example, Dědič J. et al. Obchodní zákoník, komentář. Díl. II. Prague. Nakladatelství POLYGON, 2002 p. 1140 or in Pokorná J., Kovařík Z., Čáp Z. et al. Obchodní zákoník. Komentář. I. díl. Prague. Wolters Kluwer ČR a.s., 2009 p. 593.

If there is more than one executive director, it is appropriate for these executive directors to first decide on the convocation of the general meeting, which is then subsequently convened. To this extent, it is possible to agree (according to the High Court in Prague) with the opinion expressed in connection with the legislation effective from 1 January 2014 (which, however, does not govern the case in question), that an executive director may authorize a third party to implement the executive directors' decision to convene a general meeting, and that the decision to convene the general meeting and set its agenda must be made by the executive director(s) personally and they cannot delegate the exercise of this right to a third party (followed by a quote from the introduction of the aforementioned commentary).   

Thus, according to the High Court in Prague, the regulation under the Commercial Code also stipulated, or rather it applies to the case in question, that the general meeting of a limited liability company could be convened by the executive director of that company, who had to personally make the primary decision to convene the general meeting, including setting its agenda.

The executive director was only authorized to empower a third party, at most, to implement their decision to convene the general meeting, by means of a special power of attorney, and only for individual partial acts of convening the general meeting or related thereto (for example, sending out the invitations to the general meeting, preparing the necessary number of these invitations, securing the premises where the general meeting will be held, etc.).

An executive director cannot, therefore, delegate to an authorized representative a part of their function that includes the right to decide on convening the company's general meeting. Moreover, a third party cannot be authorized to convene a general meeting without its content—the items on the general meeting's agenda—being specified in any way. 

The key conclusion of the High Court in Prague is that it is not a minor error in the convocation of the general meeting if the general meeting is convened by a person who is — de facto and de jure a third party, having no relationship whatsoever with the limited liability company in question.

Such a convocation of a general meeting is not a legal act (a legal fact or legal transaction) to which the law attaches the effects of a subsequent meeting and decision-making of the general meeting; on the contrary, these effects cannot be attached to it at all. The resolutions of a subsequently held "general meeting" cannot, therefore, be considered valid.  

Commentary: In connection with the issue discussed above, reference can be made to the wording of Section 188(1) of the Business Corporations Act, according to which the general meeting is chaired by the convener (who is usually the executive director) until a chairperson is elected. In practice, it sometimes happens that the convener (executive director) entrusts this chairing (i.e., before a vote is taken on the chairperson of the general meeting) to a third party (usually a lawyer), which contradicts the provision in question, which is mandatory according to the case law of the Supreme Court (see resolution file no. 29 Cdo 2834/2012, dated 29 January 2014).

De lege lata, this procedure is only possible for a joint-stock company (Section 422(1) of the Business Corporations Act). From the last-cited decision, it is possible to conclude (in my opinion) that the fact that the general meeting is not chaired at the beginning by the convener, but by a person authorized by them, is not in itself a reason to conclude that the resolutions subsequently adopted do not constitute resolutions of the general meeting as a corporate body.

I believe that this is only a non-material breach of legal regulations during the course of the general meeting, which does not in itself cause serious legal consequences, and it will usually be in the interest of the business corporation, worthy of legal protection, not to declare the invalidity of the resolutions (adopted at such a general meeting), even if this third party were to chair the general meeting after its chairperson had not been duly elected.

______________________________

[1] (ŠTENGLOVÁ, Ivana, HAVEL, Bohumil, CILEČEK, Filip, KUHN, Petr, ŠUK, Petr. § 181 [Pravidelné jednání valné hromady]. In: ŠTENGLOVÁ, Ivana, HAVEL, Bohumil, CILEČEK, Filip, KUHN, Petr, ŠUK, Petr. Zákon o obchodních korporacích. 2. vydání. Prague: Nakladatelství C. H. Beck, 2017, p. 386. ISBN 978-80-7400-540-4.)