Setback for Shareholder Agreements

10 December 2009

On March 6, 2009, the Supreme Court issued rulings 128 and 138/2009 consolidating case law doctrine according to which non-fulfilment of shareholder agreements does not constitute sufficient grounds to challenge corporate resolutions, even when said agreements were signed by all partners.

The partners from two families held shares in various companies with varying shareholdings stakes. In order to avoid any disputes arising from the varying shareholding stakes, the partners signed a shareholder agreement in order to regulate various matters regarding company management.

In the first case, the dispute arose because the Board of Directors granted broad dispository powers to three representatives. The resolution under appeal was passed in the second session with a three of the five directors voting in favour (the three designated by majority) as envisaged in the by-laws, instead of with four votes, as stipulated in the shareholder agreement (which required a vote in favour from at least one of the minority group directors).

In the second case, the General Shareholders Meeting removed a director who had been appointed by the minority group and named a new director from the majority group as his replacement. Even though the resolution respected that set forth in the Company by-laws, it went against stipulations in the shareholder agreement which established that the newly appointed director should have been chosen by the minority. It is further worth pointing out that although the by-laws envisaged the possibility of the minority group appointing the director, the right to proportional representation should be exercised to that end under the terms set in the by-laws, which is not what happened in the case in question.

In each of the appeals to the Supreme Court which led to the aforementioned rulings, the appellants alleged that the respective Board of Director and General Shareholder Meeting resolutions were null and void since they had been passed counter to that stipulated in the shareholder agreements signed by all the partners. The Supreme Court considered that the non-fulfilment of a shareholder agreement is not enough to challenge a corporate resolution, as long as it is lawful and does not violate company by-laws or damage company interests for the benefit of one or more shareholders or third parties; that is if it does not meet the requirements set forth in Art. 115.1 of the Spanish Corporations Law regarding challenges to corporate resolutions.

Notwithstanding, the Court emphasized the validity of shareholder agreements for internal purposes, as even though violation of the agreement does not constitute sufficient grounds for a successful challenge to a corporate resolution passed in accordance with the law and company by-laws, they do hold partners liable for a breach of the agreement.

For further information please contact Clara Fernández: cfernandez@mmmm.es