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Representation of a company by a supervisory board (towards its board members)

27/03/2014

According to the Articles 268 and 439 of the Companies Act, a joint stock company and a limited liability company are to be represented by a supervisory board in relation to its board members. However, a question has arisen in the practise as to the manner in which the supervisory board express this authority, specifically if it is enough for a president of the supervisory board to enter into agreements with board members and sign decisions that affect rights and obligations of board members in the name and for the account of a company; which is quite common in the practice.

The Supreme Court, as well the High Commercial Court, repeatedly expressed a position that the representation authority of the supervisory board is to be performed in a way that the supervisory board first has to reach a decision by which a company’s intention to take a specific action is created (e.g. the will / intention to enter into a specific agreement or to undertake a specific procedural action), after which a president or a member of the supervisory board expresses that will towards third persons. It is important that a decision has to be made at a supervisory board session, within prescribed proceeding and in a prescribed form (a session needs to be convened by a president of the supervisory board, minutes containing all legally prescribed information have to be kept and presented to every supervisory board member upon his request, while a decision can be reached only if all conditions prescribed by the company’s articles of association have been fulfilled or – if the articles of association do not contain a corresponding provision – if at least half of the prescribed members participate in the decision making process and a decision is made by a majority of all votes provided.

In order for the legal action to be valid, it is not enough for a president of the supervisory board to take it in the name and for the account of a company, it is also necessary for the supervisory board to reach first a decision on taking the corresponding action, all in accordance with the articles of association and legal provisions. The courts have gone so far, that they demanded for a supervisory board to reach another decision - after reaching a decision on taking the action - by which it authorises its president, other supervisory board member or a third person, to take the corresponding action. The High Commercial Court, for example, expressed the opinion in a court dispute between a company and a board member that, for a validity of revocation of a power of attorney to a lawyer, it is necessary for a company’s supervisory board to reach and provide both of the mentioned decisions to the court – the one on revocation of a power of attorney to the lawyer, as well as the one on authorizing a president of a supervisory board to announce a revocation decision to the court.

Considering the above, it is to be expected that in the future, the courts will demand for a supervisory board to make two decisions when it comes to representing a company towards its board members – a decision on taking a certain action and a decision on authorizing a president of the supervisory board or a third person to actually take that action.

Authors

Picture of Ana Marija Skoko
Ana-Marija Skoko
Partner
Zagreb