Consequences of an Ordinary General Meeting of Shareholders which has not approved the annual report for the mandate of the members of the Management Board.

The paricicpation in the Management Board of a limited liability company is of a cadence character. The term of office can be regulated by shareholders in the Articles of Association upon their discretion, for example by determining the term of office for indefinite time or by indicating the time of cadence the Management Board or simply by applying a solution from the Code of Commercial Companies which provides for one year term of office.

An important issue is a distinction between the concepts of the 'term of office' and the 'mandate', which are not understood in the same way. The term of office is presented as the period of being the member in Management Board of a limited liability company. Mandate is understood as the authorization of a member of the Management Board to perform his/her function. In the doctrine as well as judicature it is assumed that the lapse of time of the duration of term of office and the expiration of a mandate can happen in a different moment. The member of the Management Board can perform his authorization as part as the mandate during a shorter period, due to circumstances defined in the article 202 § 4 of the Code of Commercial Companies, and a mandate can last longer than the time of office. Art. 202 § 1 and 2 of the Code of Commercial Companies provides that the mandate of a member of the Management Board expires as of the day of approval of the financial report by the Ordinary Meeting of Shareholders.

It means, that the lack of approval by the Meeting of the financial statement is not important for the term of office of the Management Board, which terminates with the end of the last financial year or on a different date, which was indicated by shareholders in the Articles of Association. The problem of the expiration of mandate, when the financial statement is not approved by the Ordinary Meeting of Shareholders, is a different issue, which is regulated in the article 202 § 1 and 2 of the Code of Commercial Companies. However, there is dispute in jurisprudence in understanding of this regulation, in the wording: 'takes place the ordinary General Meeting which approve the financial statement'.

The article 202 the Code of Commercial Companies specifies, that expiration of the mandate takes places as of the day on which the Ordinary Meeting of Shareholders is held , which is approving the financial statement for the last financial year, when the function of the member of the Management Board was performed.  As we have said above, there is dispute in understanding of this regulation.

Predominant is the position presented by a Polish law professor Kidyba, who is of an opinion that this provision provides both for General Meeting during which:

1. the financial statement was approved;
2. the financial statement was not-approved, but the shareholders voted with that respect.

The minority opinion is that the conditions of the art. 202 § 1 and 2 Code of Commercial Companies are completed, when the Meeting adopted only a resolution about approving the financial statement. Thus a negative resolution does not have any influence over the time of office of the the directors. This interpretation is based purely on the wording of that article. In conclusion, not-approving of the financial statement by the Meeting can not affect the term of office of the member of the Management Board.

In our opinion the interpretation based solely on the texting of this provision is not acceptable due to the reasons why this provision was adopted. If the term of office expires in case the report is approved, for practical reasons it is even more justified that the term of office should expire if the report is not approved (it can be implied that there were some reasons why the approval had not been granted and it is always prepared by the Management Board as a result of their annual work and performance). Therefore in case of such a refusal of approval it should be even more justified that the term of office of the members of the Management Board expires.

Anna Dudkiewicz

Lawyer

Zdanowicz & Partners

Contact: blog@zdanowiczlegal,pl