The Resolution of the Provincial Court of Barcelona, dated January 10, 2023, case number 6/2023 (ECLI:ES:APB:2023:212), analyzed the approval of a social action for liability directed at the directors appointed by the minority group. The Barcelona Court concluded that the challenged social agreement constituted an abuse, as its main objective was not so much to exercise the corresponding action but to use it to automatically remove the affected directors from their positions. This automatic removal, as established by the law when an agreement of this nature is promoted (Article 238.3 of the Companies Act – LSC), led the company to exclude the minority group from the management of the company, contrary to what was stipulated in a shareholder agreement, and it avoided the payment of the agreed compensation in case the executive director was dismissed without just cause.
The Court conducted an analysis of the case in light of Article 204.1 of the LSC. This article, in its second paragraph, regulates the abuse of majority as a form of harm to the corporate interest that does not require the existence of direct financial damage to the company. It states that “the agreement is considered to be imposed abusively when, without responding to a reasonable need of the company, it is adopted by the majority in their own interest and to the unjustified detriment of the other partners.”
Additionally, the resolution subject of this article also addresses issues regarding the dismissal of certain directors to determine if the circumstances of abuse of majority are present in the specific case (see Article 7 of the Civil Code and Article 204.1 II of the LSC). The Resolution of the Provincial Court of Madrid, dated February 3, case number 90/2023 (ECLI:ES:APM:2023:1330), addresses these premises in its resolution.
The analysis of the resolution issued by the Provincial Court of Madrid (28th section) on February 3, 2023, focuses on determining whether the majority has
abusively exercised the right established in Article 223 of the LSC, which states that “the administrators may be removed from their positions at any time by the General Meeting, even if the removal is not included in the agenda.”
Unlike other resolutions that have considered the removal abusive when it does not respond to a “reasonable social need,” the Madrid Court, in the resolution under analysis, firmly interprets, citing abundant jurisprudence of the Supreme Court, that Article 223 of the LSC grants the General Meeting the power to remove administrators at its discretion (ad nutum), without the need to reasonably justify such an agreement. This means that it is not even necessary for the stated cause to be true, and in fact, the reasons for the dismissal may not be disclosed. Starting from the assumption that a removal agreement is often motivated by a conflict, the existence of such conflict should not lead to the paralysis of the management body. In other words, the abuse of rights should not be used to alter the special regime provided for the removal of administrators. This stance leads the Court to define the discretionary removal power of administrators as “a principle of public order that defines the rule and cannot be modified or repealed.”
The Court also acknowledges that there may be particular circumstances that could affect the general rule, specifically when it comes to the removal of administrators appointed through the proportional system (although this is not the case under consideration).
In conclusion, the Court emphasizes that it is the shareholders’ meeting that decides the dismissal of an administrator, and no justification is needed to make such a decision. Therefore, the abuse of rights cannot be invoked to change the freely established regime of revocation.
If you want to learn more about the tax implications of the removal of administrators, don’t miss the upcoming article from B LAW&TAX INSIGHTS.
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