Legal challenge of Company’s resolutions and its simultaneous correction

Legal challenge of Company’s resolutions and its simultaneous correction, what does the jurisprudence say?

Our legislation expressly allows companies to adopt resolutions that leave the previous agreements without effect. This can be done either by adopting agreements to expressly revoke the previous ones or by adopting new incompatible resolutions. Regardless of the above, the Supreme Court declares that it is not a right to repentance. 

The limits to challenging corporate resolutions

The nullity of corporate resolutions frequently alters the life of commercial companies. In order to guarantee the exercise by the partners of their right to vote, our law has mechanisms to limit the number of causes for contestation. In fact, the legislation is evolving in the sense of limiting the causes of contestation. One of these mechanisms is the correction or validation of those agreements whose defects can be corrected. In short, it facilitates the correction of irregularities in those agreements whose content is not contrary to public order. 

What happens when the remedy is subsequent to the challenge?

The Law establishes the inadmissibility of the challenge of a company resolution left without effect or substituted by another prior to the challenge. But what happens when the revocation or substitution has taken place after the lawsuit was filed? In this case, the judge will issue an order for the termination of the proceedings due to the disappearance of the object. However, there is nothing to prevent the litigation from continuing exclusively for the legal fees. 

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Bad Faith in Challenging Company Resolutions (2020)

When the social agreement has complied with the Parasocial Pact, the partner's intervention in said Pact can serve as a criterion to judge whether the action of the partner who challenges the agreement respects the requirements of good faith.

The rectification of previously contested judicial agreements

The Supreme Court declares that the challenge to a corporate agreement does not affect the validity of a subsequent ratification resolution. The rectification of the agreements is valid because it remedies the uncertainty generated by the challenge of the previous agreements. With the rectification, the ineffectiveness of the challenged agreement has occurred , i.e. the consequence of the intended nullity. These new agreements reflect the social will to comply now with the requirements of our rules. 

When the validity of an agreement has been discussed before the courts, the company is not obliged to keep it unalterable. Before the sentence becomes final, the company can adopt agreements to revoke or replace previous ones. The substitution will be carried out by adopting another resolution within the same parameter but with different content when the latter has irregularities. The rectification determines that the judge will issue an order of termination of the procedure due to the disappearance of the object. In short, as long as there is extra-procedural satisfaction. On the other hand, this is not the case when, in spite of the revocation or substitution of the agreement, the effects of the execution of the agreement subsist. 

Once the process has begun, a new Shareholders’ Meeting must be called. In it, it will be possible to correct the concurrent defects or to replace the agreements dictated to leave the demand without content. This second agreement is an independent resolution of the previous one and with the same purpose. The reason for its adoption is not to grant effectiveness to the previous agreement. What that resolution to correct or rectify seeks is to correctly reflect the will of the Shareholders’ Meeting. 

Conclusions

• The company can ratify, rectify, substitute or revoke previous agreements. It can leave these agreements without effect before being challenged, during the process or once concluded by a final judgment. 
• The correction of the concurrent defects in the agreement or its substitution leaves without content the lawsuit. 
• The foregoing determines that the judge shall issue an order for the termination of the proceedings due to the disappearance of the object. 

If this article has been of interest, we also suggest you to read the following article published on our website: What are the instructions shareholders can give to the directors of a company?