Council to council – or when a company needs a curator

Can the Supervisory Board of a capital company, elected by a shareholder who is at the same time the President of the Management Board of the company, the composition of which is entirely linked to the said President, effectively represent the company before a court in a dispute… with the said President? At first glance, the answer to such a question seems obvious. The conflict of interest and the catalogue of possible abuses are so blatant here that a negative answer to the question posed above should not raise any doubts.

Pursuant to the applicable regulations, the company should be represented in disputes with members of the Management Board by a proxy or the Supervisory Board (Article 379 of the Companies Act). However, one has to wonder whether, in a situation of an apparent conflict of interest between a member of the Management Board and the Supervisory Board, Article 379 of the Companies Act should apply. What should be given precedence in such a situation, and who, if not the proxy or the Supervisory Board, should then represent the company in a dispute with a member of the Management Board?
This was the issue faced by a client in one of the pending court cases. It all started with the fact that the President of the Management Board of a certain company, who was also a shareholder of the company, incorrectly convened a meeting at which – against the objections of other shareholders – he elected a new composition of the Supervisory Board, appointing only people related to him.

The Chairman of the Board of Directors of a company, who was also a shareholder, defectively convened a meeting at which, over the objections of the other shareholders, he elected a new Supervisory Board, appointing only people with his professional and personal connections. Moreover, he did so in a situation where two of the three dismissed members of the Supervisory Board had orders granting them security for their claim to establish the non-existence of the Supervisory Board’s resolutions on their dismissal. As a result, persons who were more or less dependent on the Chairman of the Board of Directors of that company joined the Supervisory Board of the company. Subsequently, this Chairman brought legal actions against the company in order to give the appearance of legality to the actions he had taken so far. It should not come as a surprise that in the cases in question the company was represented by the newly elected Supervisory Board, which shared the President’s view to such an extent that in one of these cases its appointed litigation attorney upheld the action (!).

The client, who remained a party to these cases, rightly decided that representation by such a Supervisory Board did not guarantee that the company’s interests would be properly looked after, and requested the court to appoint a court guardian for the company. The mere existence of a body in the form of a Supervisory Board in the company, as can be seen, did not settle the matter and did not guarantee the party an adversarial conduct of the proceedings. Moreover, in one of the pending cases brought by the chairman of the board of directors against the company, the court decided to ask one of the professional associations to nominate a candidate to act as a curator in the dispute between the board member and the company, but later, for reasons completely unknown to the parties, withdrew from doing so.

It should be pointed out that the prerequisites for the appointment of a curator in a company are, among other things, a lack preventing the representation of the entity and factual or legal impediments excluding the effective operation of the body. Is the Supervisory Board able to effectively and impartially represent the interests of the company in a situation where it is linked to the opposing party in a relationship of dependence or subordination? In such a situation, is there not too great a risk of abuse in the form of fictitious litigation and extortionate court judgments? Does such a strong conflict of interest between the parties not constitute sufficient grounds for the appointment of a guardian ad litem? Finally, should not the mere existence of security for the claims of the other Board members preclude the newly elected Board from representing the company in a dispute with a Board member?

All these questions should be answered in the affirmative.
The institution of a guardianship is therefore a good remedy to ensure that companies conduct adversarial proceedings and protect their interests. It is also not without significance that improper representation of the company threatens the invalidity of the proceedings, which is one of the most far-reaching procedural infringements.

The court’s action of withdrawing from the appointment of a guardian for the company therefore poses a significant threat to the interests of companies and does not deserve approval. This is not yet the end of the fight to ensure that the parties are properly represented, but it is already worth drawing attention to the dangerous and unjustifiable practice of courts in this regard. Hope, therefore, remains in the courts, before which there are still other proceedings pending involving actions brought by this President.
The emergence of the above issue in practice, however, brings with it a demand that the courts take a closer look at the manner in which a company is represented in disputes with members of its bodies. A seemingly trivial mistake in this respect may result in the invalidity of the proceedings, which is beneficial neither to the companies nor to the courts adjudicating these cases.