Judgment 138/2009, of March 6. TS, First Chamber, Civil

I. Importance of the Judgment

Relevant judgment in which the Supreme Court establishes the Doctrine on the proportional system in Limited Liability Companies. There are basically two questions. One, about the validity of social pacts that is settled by the Supreme Court with the usual doctrine of its ineffectiveness in the face of society. The second question is in some way linked to the first as the discussion focuses on the validity of a statutory article incorporated into the statutes of an SL. Precisely, this article is written based on the shareholders' agreement. In this case, the Supreme Court admits - and this is the novelty - that a proportional appointment within the Board of Directors is possible in an SL. 

II. Factual background

The Sociedad Turística Konrad-Hidalgo, SL, established in 1993, whose registered office is in Santa Cruz de Tenerife, is a family business belonging to two families, one is the family branch of Ignacio and the other family, the family branch of Jesus .

On the date of incorporation of the Company, the division of shares was unequally agreed between the two families: Ignació's family holding the majority, and Jesús's family, being the minority partners.

II.a Shareholders' agreements

In 1997, in order to find a solution to the problems arising from the unequal distribution between the share capital partners, a shareholders' agreement was made (agreements outside the Bylaws and the scope of the company), with the following content: " all shareholders ... undertake to act at all times for the benefit of society and based on the principles of co-management, loyalty and good faith ... »and» to balance social positions, establishing a more rigorous quorum for the adoption of structural agreements or great corporate significance and through the formation of a new board of directors made up of five members, recognizing the right of Mr. Ignacio to appoint three directors and Mr. Jesús and his clients to appoint the other two directors “;

Regarding the creation of said shareholders' agreement, the respective changes were formulated in the company's Bylaws:

II.b Bylaws

In the Statutes, the agreement was accepted whereby the minority partner was responsible for electing two of the five administrators that make up the Board of Directors, and emphasizing that «For the effectiveness of this right of grouping, it will be enough for the partners who intend to exercise it to notify the secretary of the board of directors by any means, five days prior to the holding of the general meeting in question….", So what "the vacancy due to death, declaration of death or legal absence, resignation, separation, revocation, cessation or, in general, for any other cause, of some or all of the directors appointed by grouped minorities, will be filled by the same minority that has appointed to the outgoing or outgoing, without in any case the social majority being able to fill these vacancies“;

III. Conflict

"At the shareholders' meeting of June XNUMX, two thousand, the majority group dismissed the director of the minority group, Mr. Braulio, for having approved to bring a liability action against him - which was never exercised -; and that, at the general shareholders' meeting held on December XNUMX, two thousand, the agenda for which included the "appointment of a director to fill a vacancy", the majority group appointed a new director, when doing so corresponded to the minority group according to the statutes".

For this reason, the plaintiffs filed a lawsuit which was accepted by the Court of First Instance of Arona, whose claim was dismissed in its entirety in addition to declaring the nullity of article 1 of the Statutes (the article cited above). The minority partners appealed to The Provincial Court of Santa Cruz de Tenerife, whose court shared the decision of the Court of First Instance.

IV. Conflict Resolution

The case reached the Supreme Court, which ruled on the two controversial aspects of this case: a) the 1997 shareholders' agreement and; b) the invalidity of article 19 of the Statutes.

The minority partner intends to challenge the resolution of the General Meeting by which the majority partner appointed an administrator of his choice, when according to the agreement, the decision corresponded to the minority group.

IV. a Parasocial Pact inoperability

Faced with the claim to declare the succession agreement enforceable against society, the Supreme Court recalled the reiterated jurisprudential doctrine on the case. The legal fact that  conditions the success of the challenge to the fact that the agreements, must be contrary to the law, oppose the statutes or injure, for the benefit of one or more shareholders or third parties, the interests of the company. Consequently, the mere infringement of the shareholder agreement in question is not enough, by itself, for the annulment of the contested agreement - judgments of December 10, 2.008 and March 2, 2.009 - ”.

IV. b Invalidity of article 19 Bylaws

Regarding the Declaration of Nullity of the Statute provision, it being true that Law 2/1995, of March 23 (currently repealed), does not provide a provision on the proportional system and the protection of minorities, as does the Article 137 of Royal Legislative Decree 1564/1989, of Public Limited Companies,  It does not imply that said system is excluded, under the sanction of nullity, a decision that was made by the Court of 1st instance and AP of Santa Cruz de Tenerife.

The high court recalls that the Article 12, section 3 of the Law that regulates the SL. states that "All the agreements and conditions that the partners deem appropriate to establish may be included in the deed, as long as they do not oppose the laws or contradict the shaping principles of the limited liability company.”, And since the statutory provision is not contrary in any of these cases, the high court does not share the decision made by the Hearing and Court of 1st Instance, and the valid precept is declared.

But even if that decision was made, rejects the challenge to the corporate resolution for the appointment of the member of the board of directors approved by the general meeting, because minority partners do not follow the procedure to exercise their right to group, which, as provided in the statutes,  »For the effectiveness of this right of grouping, it will be enough for the partners who intend to exercise it to notify the secretary of the board of directors by any means, five days before the holding of the general meeting in question ... «. Right that they did not exercise with due procedure.

V. Doctrine on the legality of minorities

“The silence of Law 2 / 1.995 - and the exclusive reference to shares contained in Royal Decree 823 / 1.991, of May 17 - does not have the meaning of a prohibition applicable to limited liability companies. 

Nor is it contrary to the principle of equality of the rights linked to the shares - article 5.1 of the same Law -, given the inequality from which, in fact, minorities start in the appointment of directors. 

It must be taken into account that the regulation of this type of company is inspired by the ideas of flexibility - as stated in the explanatory memorandum of Law 2 / 1.995, "so that the autonomy of the will of the partners has the possibility of adapting the applicable regime to their specific needs and convenience "- and the protection of the minority, which - as indicated in the same explanatory memorandum - lacks the most effective defense measure, consisting of" the possibility of negotiating freely in the market the equity value in which the participation of the partner is translated «.

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