Lze upravit duvody pro odvolani clena organu kapitalove spolecnosti

Can the grounds for dismissal of a member of a body of a capital company be set out?

Last autumn we informed you about the conclusions of the Supreme Court, which concluded that it is possible to set forth an unlimited term of office of members of the board of directors in the articles of association (Can the articles of association provide for an unlimited term of office for the members of the board of directors? | EY Czech Republic).

However, the Supreme Court's decisions also indirectly touched upon another related issue widely discussed in practice, i.e. whether the founding legal act (articles of association or articles of association) may set forth a specific grounds for dismissal of a member of an elected body (e.g. a member of the board of directors or a managing director).

In principle, the general meeting or the supervisory board in a joint stock company (if, according to the articles of association, it is entitled to elect and dismiss members of the board of directors) may at any time dismiss a member of an elected body. Such dismissal does not have to be based on a specific reason, i.e. dismissal without cause (ad nutum). At the same time, the Supreme Court has previously held that the founding legal act cannot establish the absolute irrevocability of members of elected bodies.[1]

However, in practice, it is very common for a company to agree with a member of an elected body on specific grounds for dismissal in the agreement on performance of the office (in particular, individual cases of breach of duties in the course of performance of the office or breach of loyalty). However, the failure of the general meeting or the supervisory board to comply with these (contractual) arrangements does not affect the validity of the dismissal itself. The consequence is at most the company's obligation to pay the dismissed member the agreed penalty (typically a contractual penalty).

Already in August 2019, the Supreme Court for the situation of a unit owners' association (i.e. a type of legal entity of a corporate nature) admitted that provisions of the articles of association setting out specific grounds for the dismissal of committee members do not contravene the mandatory provisions of legal regulations (see Decision of 27 August 2019, case no. 26 Cdo 2103/2019).In the context of business corporations, specifically limited liability companies, the Supreme Court indicated as early as March 2022 that: 'Decisions on the dismissal of the managing director also belong to the competence of the general meeting [Section 190(2)(c) of the Act on Business Corporations]. Unless the memorandum of association provides otherwise, the general meeting may dismiss the managing director without any reason or for a specific reason expressed in the decision on dismissal." (Decision of 29 March 2022, case no. 27 Cdo 1175/2021).

It follows from the above that specific reasons for the dismissal of a member of an elected body can be agreed directly in the founding legal act and thus establish corporate (status) effects to such reasons. The above conclusion is cautiously confirmed by the doctrine in the circumstances of a joint stock company: 'We believe that the articles of association cannot establish the absolute "corporate" irremovability of members of elected bodies of a joint stock company, but they can apparently link their removability from the office to certain grounds, in particular to a breach of legal obligations. The dismissal of a member of the relevant elected body contrary to the articles of association would then create a right to seek the resolution of the general meeting is declared invalid."[2]  We add that in our opinion, also with reference to the above mentioned case law relating to limited liability companies, there is nothing to prevent the above conclusion from being applied to all members of elected bodies of capital companies.

In this context, however, it should be added that it is not clear whether a member of an elected body who is dismissed from the office in violation of the reasons set out in the founding legal act will be entitled to bring an action for invalidity of the resolution of the general meeting (or the supervisory board) that removed him/her in violation of the wording of the founding legal act. It follows from the case law of the Supreme Court[3] concerning the old legal regulation that the dismissed member has in principle a legal interest in the review of the resolution of the general meeting on his/her dismissal. Nevertheless, part of the doctrine criticises this decision and denies the legal interest of the dismissed member.

If you would like more detailed information, please contact the authors of this article or other members of the EY team with whom you work.

Authors:

Dušan Kmoch

Klára Hurychová
 

[1] See Supreme Court Resolution of 11 October 2000, Case No. 29 Cdo 968/2000.

[2] See LASÁK, J. 4.3 Removal from office. In: ŠTENGLOVÁ, I., DĚDIČ, J., LASÁK, J., PIHERA, V., LÁLA, D., JOSKOVÁ, L. Joint stock companies. Prague: C. H. Beck, 2023, p. 420, marg. no. 1407.

[3] See Supreme Court Resolution of 22 November 2016, Case No. 29 Cdo 5352/2015.