How to score an own goal in a corporate dispute?

The Management Board of a public company convened an Extraordinary General Meeting of Company A, where the agenda included, among other things, an agenda item on changes to the Supervisory Board. Immediately after the Assembly was convened, the Management Board of the company tendered its resignation and, prior to the resignation, granted a broad power of attorney for a proxy whose task was, among other things, the organisational preparation of the Assembly. At the same time, 4 of the 5 members of the Supervisory Board resigned prior to the Assembly

No provision of the Companies Act expressly indicates on which entity the obligation to prepare, including the provision of a notary public for the Meeting rests. Nevertheless, it is an established view in doctrine that there is a so-called presumption of competence of the Board[1]. Therefore, in the absence of the Management Board, the competence for the organisational preparation of the Meeting rested with the proxy.

At the same time, in accordance with Article 409 § 1 of the CCC, the General Meeting is opened by the Chairman of the Supervisory Board or his deputy, and then a chairman is elected from among the persons entitled to attend the General Meeting. In the absence of these persons, the General Meeting is opened by the Chairman of the Board or a person appointed by the Board. These rules apply – as indicated by Article 409 § 1 of the Companies Act – unless the Articles of Association provide otherwise. § Paragraph 17(1) of the Articles of Association of Company A modifies the above rule in such a way that the general meeting is opened first by the chairman of the Supervisory Board and, in his absence, the meeting is opened not by the vice-chairman of the RN, but by another member of the Board. Thus, the competence to open the Assembly was vested exclusively in the sole member of the Supervisory Board.

On the day of the Meeting, a group of Company A shareholders, including one of the largest holding over 1.2 million shares with a number of proxies, turned up at the Company’s offices. Upon entering the meeting room, one of the persons introduced himself as a notary, said that he had already started the proceedings and enjoyed the protection of a public officer. The notary also pointed out that, according to the regulations on notaries, the notary the company indicated could not undertake actions that were being minuted by another notary.

The company’s attorney and the only member of the Supervisory Board called several times on the notary who had “self-appointed” himself as notary of the Assembly to leave the meeting room as well as the company’s premises. It is obvious that since the only person entitled to open the Meeting (a member of the Supervisory Board) did not open it, the notary could not start recording the activities of the Meeting, which, after all, always starts with the opening of the entitled subject. Otherwise, goals scored before the first whistle of the referee would have to be included in the post-match minutes.

In the absence of the ‘self-appointed’ notary leaving the room, the proxy of Company A and a member of the Supervisory Board decided to move the Meeting to the next room at Company A’s headquarters. They were followed by a notary appointed by the company, and some shareholders, including the proxies of one of the largest shareholders holding more than 1.2 million shares.

At the same time, the ‘self-appointed’ notary, some shareholders, including the Chairman of a shareholder holding more than 1.2 shares, remained in the room where the Meeting was originally to be held, declaring that in view of the unfounded refusal of a member of the Supervisory Board to open the Meeting, he was entitled to open the Meeting.

At the same time, the only member of Company A’s Supervisory Board in the room next door opened the Assembly, a notary brought by the company proceeded to take minutes of the Assembly. Nevertheless, the Assembly was torpedoed by the proxies of one of the largest shareholders. One proxy, in order to obstruct the meeting, stated that he wished to exercise his right to vote separately on each ballot and demanded that over 1.2 million ballots be issued. While these were being prepared, one of the persons related to a shareholder holding over 1.2 million shares entered the room and declared that the Supervisory Board of Company A had just been changed in the room next door, which immediately met and elected him as Chairman of the Board of Directors of Company A. He was therefore relieving the notary public of his duties on behalf of Company A, with which statement the alleged Chairman of Company A frightened the lady notary public, who left the company and thus the legitimate Meeting was broken up.

Immediately, the alleged President of Company A, “changed” the Board of Directors in Company B (in which Company A held 100% of the shares) and then the alleged President of Company B “changed” the Board of Directors in Company C (in which Company B holds 100% of the shares).

Given the circumstances (corporate inquisition), the Warsaw District Court consistently refused to disclose the “changes” in the bodies of companies A, B and C, including suspending the registration proceedings until the proceedings for the annulment of the resolutions of the General Meeting of Shareholders in company A concerning changes in the Supervisory Board, and of the resolution of the alleged Supervisory Board of company A “changing” the Management Board, had been legally concluded.

At the same time, the Regional Court in Warsaw granted security in companies B and C by suspending the resolutions “changing” the bodies in companies B and C until the proceedings were legally concluded. The difference in the rulings is that in one proceeding the Court granted security for the claim to establish the non-existence of the resolutions, while in the other the Court granted security for the claim to declare the resolutions invalid. Nonetheless, in both decisions, the Court found that both claims were plausible for the same reason, i.e. the failure to maintain a quorum.

Indeed, pursuant to Article 408 § 1 of the Companies Act, a General Meeting is valid irrespective of the number of shares represented at it, unless otherwise provided by this section or the Articles of Association. However, in Company A, the Articles of Association provide that the Meeting is valid if 25% of the total number of votes are represented at it. Together with more than 1.2 shares of the shareholder, more than 29% of the total number of votes were represented at the “meeting” minuted by the “self-appointed” notary. However, the Warsaw Regional Court, which granted safeguards, found that, since the shareholder’s proxy exercised rights from more than 1.2 million shares at the legitimate meeting, requesting, among other things, more than 1.2 million ballots, at the same time the shareholder could not exercise rights from these shares at the meeting next door. In connection with the above, the Regional Court of Warsaw stated in two rulings that at the meeting with the “self-appointed” notary without more than 1.2 million shares, only more than 18% of the total number of votes was represented, and thus the Assembly of Company A did not take place (lack of quorum). The consequence of the above is that the appointment of the Board of Directors in company A and the changes to the bodies in companies B and C are ineffective.

In connection with this, the representative of a shareholder holding 1.2 million shares, who paralysed the proceedings of the legitimate Meeting by demanding that over 1.2 million voting cards be issued in order to make changes at the meeting as quickly as possible, failed to notice that by doing so he was depriving the shareholders’ meeting, which was taking place next door, of its quorum. At this ‘Meeting’, his principal pushed through changes aimed at a hostile takeover of Company A.

The above situation is illustrated by the following video and can only be commented on with one sentence: ‘Oh, Karol’.