– November 29, 2023

Under what conditions can a resolution of the Annual General Meeting be contested?

In a public limited company, the law of the jungle applies. The Annual General Meeting passes resolutions by a majority of the votes represented (with the exception of special cases; OR 703). However, the losing shareholders are not at the mercy of the majority without protection.

If a resolution violates the law or the articles of association, any shareholder may request the court to annul the resolution (OR 706 I). The law cites examples of cases in which the cancellation may be considered, including:

  • Withdrawal/restriction of shareholder rights in violation of the law or the Articles of Association
  • Withdrawal/restriction of shareholder rights in an unobjective manner 
  • Unequal treatment/discrimination against shareholders that is not justified by the purpose of the company

This list is not exhaustive. The examples provide a guideline and AGM resolutions can also be cancelled in accordance with Federal Supreme Court case law if they are an abuse of rights.

The latter is the case if (a) there is no reasonable economic reason for the resolution, the resolution (b) infringes the interests of the minority and (c) unjustifiably favours the interests of the majority. However, this does not mean that the court can scrutinise every AGM resolution to determine whether it is in the interests of the company or the shareholders as a whole. Individual shareholders must accept that their interests are overridden by a majority. The court can only intervene if a majority clearly abuses its position to the detriment of a minority. Whether the conditions are met must be examined on a case-by-case basis.

The Federal Supreme Court recently had the opportunity to apply these principles in practice (judgement of 13 July 2023). The public limited company in question essentially had two shareholders: A majority shareholder with around 69.39% of the voting rights and a minority shareholder with around 22.66% of the voting rights; the remainder was in free float.

In accordance with the Articles of Association, the minority shareholder had the right to nominate four persons to the 12-member Board of Directors. The majority shareholder was only unable to elect the nominees for valid reasons. The minority shareholder’s right to nominate candidates was to be reduced to one member of the Board of Directors by means of an amendment to the Articles of Association. The minority shareholder voted against the amendment to the Articles of Association, lost and challenged it in court. She won in all three instances.

If you have any questions in Planning and Construction Law, our lawyers will be happy to advise you.