Abuse of rights in the Shareholders’ Meetings

Summary:

1. Concept of abuse of right.
2. When does the abuse of rights occur?
3. When and how can we challenge the agreement?
4. Conclusion.

Concept of abuse of rights.

First of all, it is necessary to briefly mention what an “abuse of right” is. This concept implies the exercise of a right. Such exercise of this right comes to exceed the normal limits of such right. And that, therefore, it is used in an immoral or antisocial way, causing damage.

Logically, this figure can occur in any legal field. But in this collaboration we will deal with it in the corporate field. Specifically, in the Meetings of partners: What happens when there is an abuse of right in them? When does it take place? How do we challenge it? We analyze it.

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Are omnilateral parasocial agreements enforceable against the company?

Shareholders' agreements or extra-statutory agreements are a widely accepted tool in the commercial sphere. Its purpose is to regulate the relations between the partners outside the statutes and the social contract. In addition, its validity is fully accepted in our legal system.

Abuse of rights in the Board.

We have briefly mentioned the concept of abuse of right. But, what requirements must be met on a Board to appreciate it?

These requirements have a general character and therefore they are extrapolable to the Meeting, we speak of three in particular:

• A legally established right must be exercised.
• Production of a damage based on an interest not included in the specific legal provision.
• Immorality or antisociality of the damage. We have mentioned them above, and they can appear both subjectively and objectively.

As we can see, these are general objectives that can nevertheless be applied to the case of the Boards. In this sense, the position taken by case law is particularly enlightening. Lets discuss what our jurisprudence has said in this regard.

The definition explained above can be extracted from our legislation, which regulates the abuse of power. Therefore, it is included in the law, it is not a doctrinal or jurisprudential concept. This makes possible the settled jurisprudence: the abuse of right in the Boards has a double differentiation:

• On the one hand, the legal regulation in corporate matters. This makes it possible to challenge for abuse of rights within the limits of the company itself. That is to say, the abuse of rights would be the injury of the corporate interest. We must also take into account the provision made in such article regarding the abuse by majority. This means, when the agreement is taken by the majority in an unjustified manner. Only to the detriment of minority shareholders. In this case, if the specific requirements are met, we would also be talking about an abuse of right. And therefore, it would be possible to resort to this means of challenge.
• On the other hand, a corporate agreement may harm the interests of a third party, for example. We are talking about cases in which the provisions of the aforementioned corporate legislation do not apply: the corporate interest is not harmed, nor is there an abuse of majority.
• In such a case, the corporate legislation does not establish anything in this respect. Therefore, it would not seem possible to challenge this resolution. However, the aforementioned corporate legislation expressly allows the challenge of agreements contrary to the law. This is where the jurisprudence considers that these cases affecting third parties are framed. This expression of contrarity to the law must be understood as contrary to the legal system. And not specifically to the corporate legislation itself. And as we have mentioned, they would be contrary to the civil legislation previously defined. Therefore, we would be talking about a full-fledged abuse of right.

Who can challenge these corporate resolutions and how?

The answer to this question is provided by the corporate legislation itself. Thus, reference is made to the administrators themselves and to third parties that accredit a legitimate interest. In addition, logically, to the shareholders who were shareholders before the agreement and represent at least 1% of the capital stock.

Logically, we would include within “third parties that accredit a legitimate interest” those who suffer the abuse of right that is included in the civil legislation that we have been mentioning.

Regarding the procedure and expiration date, the entitled party will have one year to exercise this action. Counted from the date of adoption of the agreement. It must be ventilated by ordinary proceedings.

Conclusion.

It is clear that the abuse of rights legitimizes the challenge of corporate resolutions. This is what is stated in our jurisprudence. We must therefore distinguish between two different situations: abuse of rights within the limits of corporate law and in violation of civil law. In any case, we must keep in mind the time limit: 1 year from the date of adoption of the resolution.

If this article has been of interest, we also suggest you to read the following article published on our website: Bad Faith in Challenging Company Resolutions (2020)