Is the expiration of the deadline for the celebration of the Shareholders´meeting significant?

Is the expiration of the deadline for the celebration of the Shareholders´ Meeting significant? This question is especially relevant for the administrative body, which is responsible for calling the meetings.

What are the types of Shareholders’ Meetings?

There are two types of Shareholders’ Meetings in capital companies. On the one hand, there is the Ordinary General Meeting. This meeting is mandatory in all capital companies. In this meeting the approval of the corporate management, the annual accounts and the application of its result are debated. In order for this approval to take place, it is imperative that the closure of the previous year, since it is always discussed. Thus, the Meeting will take place months after the end of each fiscal year.

On the other hand, there is the Extraordinary Shareholders’ Meeting. The subject matter of this Meeting is defined negatively by the legislator. Thus, all meetings that deal with subjects other than those of the ordinary meeting are considered extraordinary.

General Meetings are called by the administrative body. However, shareholders holding at least 5% of the capital stock may also request the calling of a General Meeting. This power is mainly used to call Extraordinary General Meetings. The Ordinary General Meeting is called by the administrative body after the corresponding meeting for the presentation of the annual accounts.

Are all  Meetings subject to a deadline?

Given the flexibility of the subject matter in  the Extraordinary Shareholders’ Meeting, there is not deadline. It may be held at any time during the financial year. On the other hand, the Ordinary General Meeting does have a deadline. The Ordinary General Meeting must be held within the first six months following the end of the financial year. At the end of this time, the company will have the obligation to deposit the annual accounts in the Mercantile Registry.

It is very common to hold General Meetings that are both Ordinary and Extraordinary. At these meetings, the three aforementioned mandatory items are voted on, as well as others, such as the renewal of auditors.

Can the time limit be exceeded?

In the past there was a lot of disagreement among the lower courts about the running of the six-month period of the ordinary Board. There were four different jurisprudential positions, two extreme positions and two intermediate ones. The strictest one considered that the term was rigid and when the six-month period was exceeded, a judicial call had to be made. The more flexible one, on the other hand, accepted that the Meeting could be held after the initial six months of the fiscal year. Likewise, neither of the two intermediate positions is the one that was finally accepted and included in the legislation. One consisted of allowing this late meeting to be held only and exclusively if there was a justified cause that made it impossible to hold it earlier. The other, however, stated that after six months had elapsed, an Extraordinary Meeting should be called. This was the position most commonly used by the courts until the legislator settled the debate.

Currently, the law provides that the Ordinary Shareholders’ Meeting will be valid regardless of whether it is called or held after the deadline has elapsed. Therefore, it is irrelevant to exceed the period of six months at the beginning of the fiscal year to hold the General Meeting. In addition, given the jurisprudential controversy, the Supreme Court unified the doctrine in this regard. It established that this rule on the validity of the late celebration should be applied with retroactive effect. This effect was due to the fact that, being a clarifying rule, it was an exception to the principle of non-retroactivity.

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Article 160 f) When does the General Meeting decide?

In capital companies with highly atomized capital, there is a risk (strongly contrasted by reality) that the management body may have hijacked the Company. Article 160 LSC aims to cover this reality. And 160 f) to the putting at risk of assets considered essential.

What are the consequences of the expiration of the time limit?

If the Meeting has not been convened within six months, the shareholders will be entitled to request its convocation. These partners, with more than 5% of the capital, will be able to go to the judicial secretary or to the mercantile registrar to convene the Meeting. However, this power, especially with regard to the judicial convocation, is of no practical use. This is due to the length of the legal proceedings.

If the Meeting were not held, the annual accounts would not be approved, and this could have two consequences.  On the one hand, it could cause a paralysis of the corporate bodies and ultimately a cause for compulsory dissolution. On the other hand, if they are not approved, they would not be deposited in the registry, which would lead to the closing of the Registry’s records. That is to say, it will no longer be possible to record any legal act relating to the company. This circumstance is one of the main reasons for allowing the holding of the late Meeting. The aim is to avoid the closing of the company’s page in the corresponding Mercantile Register and its consequences.

Finally, if it is convened and held late, there will be no negative effect on its resolutions. Thus, all corporate resolutions approved by the General Meeting will be valid. In fact, considering the requirements to challenge corporate resolutions, it is noted that they cannot be challenged due to this lapse of time.

Does it imply responsibility for the administrator who is the one who convenes it?

Although the belated Ordinary Meeting is valid, this does not imply that the administrative body will be free of responsibility.Because it is a duty of said body to comply with its mandate to call the General Meetings. Thus, a corporate or individual action for liability may be brought if this delay has caused damage. If the damage has been caused to the corporate interest, it will be the company that may request such liability. Also, if there was direct damage to the assets of a specific shareholder, the latter will also have the power to request it. However, given the nature of this obligation, it is more usual that the liability it generates should be against the corporation.

Conclusions

The holding of the Ordinary General Shareholders’ Meeting after the first six months of the fiscal year is inconsequential. Thus, everything agreed by the Shareholders’ Meeting, even if it is held after the period indicated by law, will be valid. However, this implies that the administrative body will be liable for failing to comply with this temporary duty.

If this article has been of interest, we also suggest you to read the following article published on our website: The dissolution of a Company due to the paralysis of its corporate bodies.