Option of a shareholder to call upon the excluded shareholder to fulfil his obligation and to warn him of the possibility of expulsion from the company

Authors of the article: Mgr. Martin Faktor, Mgr. Pavel Čech, ARROWS (office@arws.cz, +420 245 007 740)

The issue of expulsion of a shareholder from a limited liability company is an important area of corporate law. This process, regulated in particular by Sections 157 et seq. and 204 of Act No. 90/2012 Coll., on Business Corporations ("Act No. 90/2012 Coll., on Business Corporations"), involves several key steps to ensure a fair assessment of the situation and protection of the rights of all parties involved. One of these steps is the call for redress, which must precede the filing of an action for expulsion of a shareholder. This article focuses on the question of who is entitled to make such a challenge and the practical implications of this issue.

The meaning of a notice to comply with an obligation under section 204 of the Civil Code

Pursuant to Section 204(1) of the Civil Code, a company may request the court to expel a shareholder who is in serious breach of his or her obligations, provided that he or she has been called upon to perform them and has been warned of the possibility of expulsion. This notice serves not only as a warning to the shareholder of his or her unlawful conduct, but also as a means for the company to ensure that the possibility of redress is available and to demonstrate that everything has been done to resolve the situation amicably.

However, the law does not explicitly state who specifically is obliged to make the challenge. In practice, this ambiguity raises questions, especially if the statutory body of the company (e.g. the managing directors) remains inactive or has a conflict of interest.

Derivative action and shareholder's rights

Pursuant to Section 157(1) and (2)(d) of the CCC, a shareholder is entitled to bring an action for the exclusion of another shareholder (derivative action) on behalf of the company if the statutory body of the company fails to bring such an action. This representative power of a shareholder is subsidiary, which means that it can only be exercised if the relevant statutory body of the company does not exercise the right to act itself.

In a recent case (judgment of the Supreme Court of 20 November 2024, Case No. 27 Cdo 3786/2023), the question was addressed, inter alia, whether a shareholder who intends to file a derivative action may at the same time take the steps necessary to file such an action, including a request for remedy pursuants to Section 204(1) of the Civil Code. This opinion confirms the importance of the shareholder's right to protect the interests of the company in cases where the statutory body is unable or unwilling to act.

Cases where a derivative action may be brought without notification of the intention to the statutory body

In the present case, the Supreme Court evaluated an interesting question with regards to the specific circumstances, when it is not necessary to notify the statutory body of the intention to file such an action before filing a derivative action.

This is especially the case when the statutory body of the company makes it clear in advance that it will not bring an action against the excluded shareholder. In the present case, that fact was compounded by the fact that the majority of the members of the statutory body of the company were the same persons as the statutory body of the shareholder who had intended to bring a derivative action. They would thus have informed themselves, in essence, of their intention to bring an action.

Practical implications of the decision

The decision of the Supreme Court confirms that a shareholder may take the initiative in cases where the statutory body of the company fails to act, including by making a call pursuant to Section 204(1) of the Civil Code. This option is crucial to ensure the protection of the company's rights and to prevent situations where the inaction of the statutory body could lead to unjustified unenforceability of the company's rights.

In conclusion, the Supreme Court's decision provides important guidance for corporate law practice. Shareholders should be aware of their right to act for the company in the event of inaction of the statutory body and ensure that all legal conditions are met to ensure that their actions are procedurally and substantively correct.

Do you feel that one of the partners in your company is repeatedly violating his or her duties and you do not know how to resolve the situation? The law gives you the opportunity to act - even if the statutory body remains inactive. Do not hesitate to contact us - we will ensure that your action is in accordance with the law and procedurally bulletproof. With us, you can rest assured that your company's rights will remain protected and the entire process will run smoothly.