How the defects in the convening of the General Assembly (GA) affect its decision

legal insight

October 2023

Areti Kolokotroni, LL.M.

Abstracts: Defective resolutions of the General Assembly, which is the supreme body of Societe Anonyme, are divided into invalid, voidable and non-existent, depending on the gravity of the defect that has been present during the process of their adoption. This note will analyse how the defects in the convening of the General Meeting affect the subsequent decision taken by the latter. It is essential to distinguish whether there is a complete lack of convening the General Meeting, which leads to the invalidity of the decision taken, or whether there is a convening, but defective, which makes the decision invalid under the conditions of Art. 4548/2018.

Α. Lack of convening of the General Meeting - Invalidity of the decision

According to Art. 138 par. 1 of Law No. 4548/2018, in case there was no convening of the General Meeting, the decision to be taken is invalid. For the application of this provision, it is assumed that no convocation was preceded at all and not when there was a convocation, which, however, does not meet the requirements of the law or the Articles of Association (a case that will be analyzed below). The law considers the absence of a meeting to be the most serious defect in the decision taken by the general meeting, and the law provides for the decision to be invalid. That is because the lack of a meeting means that the shareholders are not informed of the holding of the General Meeting and are deprived of the possibility of exercising their rights to participate in the General Meeting held and to oppose the decisions to be taken.

1. In which cases is a meeting of the shareholders considered to have been convened by law? 

There is no convocation of a general meeting if there has been no invitation coming from the company and containing at least an indication of the date and place of the general meeting and published in accordance with the law and the articles of association (Art. 138(2)). The provision outlines the minimum requirements for a meeting to be deemed to have been convened. If the above requirements are met, but irregularities are found in the procedure for convening the general meeting, the decision of the general meeting is not invalid but may, under certain conditions, be considered null and void. In particular:

i. Invitation coming from the company: 

A call is considered to originate from the company when it is made by the Board of Directors (BoD), as the body primarily responsible for convening the meeting, or a member of the BoD. It should be noted that it is irrelevant whether there are defects in the decision of the Board of Directors to convene, e.g. illegal composition, illegal assembly, lack of quorum or majority. It is also irrelevant whether the Board has been duly elected. In other words, even if the election of the Board of Directors is invalid or void or has been annulled, there is no question of invalidity of the resolutions of the General Meeting, as the invitation comes from the company within the meaning of the law, but only of annulment under the conditions of Article 137. It is crucial that the shareholders understand the invitation as coming from the company and attend the general meeting to exercise their rights. As long as the invitation comes from the Board of Directors that appears in the company's officially published data in the General Commercial Registry (GEMH), it meets the requirements of the provision.

Characteristic in this respect is the judgment of the decision of the Thessaloniki Multi-Member Court of First Instance No. 4907/2017: "Therefore, under the current law of Law 3604/2007, when the Board of Directors was elected by an invalid or invalid resolution of the General Meeting of Shareholders, pursuant to Article 35b and 35c of Law 2190/1920, there is still a lack of management of a Public Limited Company, as before, but, if it subsequently convenes a General Meeting, then because the invitation comes from the company, to which it is attributed, and in particular from the Board of Directors, even if the latter has not been duly elected or constituted, this procedure also results not in the nullity but in the nullity of the decision taken by the General Meeting, since it is an illegal but subordinate procedure'.

Similarly, the Supreme Court's decision No. 1392/2014: "With the provisions of Article 35a, 35b of Law no. 2190/1920, as amended by Article 42 of Law. 3604/2007 (Government Gazette A' 189/8.8.2007) applicable to decisions of the General Assembly convened or taking place after 8.10.2007 (Art. 79 para 7 b) and 82 of Law 3604/2007), the defects of the decision of the Board of Directors, by which the General Assembly was convened, constitute grounds for annulment of the decision of the General Assembly, which is valid until its final annulment ... This provision requires that the meeting be deemed to have been legally convened when the decision to convene the Board is taken by members of the body whose number is insufficient to take a valid Board decision (invalidity of a Board decision due to lack of quorum and majority) and when it is taken by a Board of Directors. Board which, due to understaffing, has lost the ability to function as a corporate body at that particular moment (invalidity due to lack of legal composition), while the invalidity of the relevant General Meeting decision is only applicable when it affects the right of the partners to participate in the General Meeting'.

Moreover, the invitation is deemed to originate from the company in both (2) of the following cases. If it is the case that the company's auditor is appointed in accordance with Article 121 (2) of Law No. 121 (2) of the Act, the auditor of the company is appointed in accordance with Article 121 (2) of the Act. 4548/2018 and b) coming from a minority shareholder representing 1/20 of the share capital, following a court decision (article 141 paragraph 1 of Law 4548/2018). In the latter case, the following distinction must be made. Different treatment when the invitation comes from a minority that does not represent 1/20th of the share capital but a smaller percentage, because the invitation will not come from the company (the law expressly requires a minority representing 1/20th of the share capital), resulting in the invalidity of the subsequent decision taken. 

ii. Invitation containing an indication of the date and place of the general meeting: the date is sufficient and no indication of the time is required (if the time is missing, the resolution is invalid). The place must be the exact address and it is not sufficient to simply mention e.g. the municipality. As regards the time and place of the meeting mentioned in the invitation, it is understood that this must be correct. If the meeting was held at a time or place other than the one indicated in the invitation, a meeting is constituted without an invitation and the relevant resolution is invalid (see AP 1392/2014).

iii. Notice published in accordance with the law and the articles of association: In addition to the provisions of the law, the more specific provisions of the articles of association must be complied with, e.g. a provision of the articles of association to notify shareholders also by individual letter, which was not complied with, implies the lack of convocation and the invalidity of the decision to be taken by the general meeting.

At this point, it should be noted that if we have a universal General Meeting at which all shareholders are present and no one objects, the lack of notice is cured, the General Meeting is considered to have been legally convened and is legally taking a decision.

2. Legal consequences of the lack of convocation: 

If the minimum requirements for the existence of a convocation set out above are not met, the decision to be taken is null and void. The invalid decision is automatically considered non-existent and does not develop its legal consequences from the time of its adoption pursuant to Article 180 of the CC (see PCR 2809/2014). However, anyone with a legal interest (shareholder or third party) may claim recognition of the invalidity of the decision within one (1) year of its adoption (action for declaratory relief). In such a case, the effects of the invalid decision shall be retroactively annulled from the time of its adoption. The invalid decision shall become inoperative and its defect shall be cured if the period of one year for bringing an action for nullity has elapsed without effect.

In particular, a shareholder's claim of invalidity on the grounds that the general meeting was not convened is not admissible if the shareholder subsequently declared to the company in writing or in a statement in the minutes that the general meeting was legally convened (Article 138(3)). His subsequent declaration (provided that it follows the finding that the meeting was not convened) excludes the shareholder in question from the right to raise the existing nullity. 

B. Defective convening of the general meeting - Invalidity of the decision 

Resolutions of the general meeting which may be annulled by a court decision are null and void if the grounds for annulment specifically provided for by law are met. The grounds for annulment include, inter alia, the failure to convene the general meeting which took the (annullable) decision in accordance with the law or the statutes. The unlawful convocation, to which the provision of Article 137(1)(b) of the Articles of Association refers, shall be deemed to have been unlawfully convened. 1, constitutes a procedural defect in the decision of the general meeting and this provision applies when, in any case, there was a convocation, but it did not meet the requirements of the law or the articles of association. 

1. Case law: 

Thus, the convening of the General Assembly is not lawful, according to this article, in the following illustrative cases: 

- The invitation comes from a Board of Directors that has not been legally elected or constituted (see PPR 4907/2017).

- The General Meeting was convened following a defective decision of the Board of Directors to convene the General Meeting, e.g. because the Board of Directors met at a place other than the one provided for in the law and the Articles of Association.

- The General Meeting was convened by members of the Board of Directors, the number of which is not sufficient for the adoption of a valid decision of the Board of Directors (invalidity of a decision of the Board of Directors due to lack of a quorum and majority - see the provisions of the Law of the Republic of Lithuania on the basis of the law). The decision is taken by a Board of Directors which, due to understaffing, has lost the ability to function as a corporate body at that particular moment (invalidity due to lack of legal composition - see AP 1392/2014) or by individual members of the Board of Directors, e.g. by a single member, without a decision of the Board of Directors. 

- The AGM has been convened by a call, which does not contain the complete information required by Art. 3 and 4 (premises with exact address, date and time of the meeting, agenda items, shareholders entitled to participate, etc.) (see MΠрΣυрΣυр 49/2023, MΠрΘεσ 14866/2022).

- The decision of the General Meeting was taken on an item not mentioned in the invitation or not related to any of the items on the agenda.

Article 137 also lays down certain additional conditions for the decision to be considered null and void: 

a) If the defect exists in the resolution of the Board of Directors by which the General Meeting was convened, the shareholders must have not been timely and adequately informed for this reason. Otherwise, the annulment of the resolution cannot be sought. Since the law makes no distinction, the defect in the Board's decision to convene the GM may be attributable not only to a defect in the specific decision of the Board, but also to a general defect in the functioning of the Board, such as if the Board is not legally constituted or has not been duly elected.

b) Secondly, decisions of the General Meeting which the latter has confirmed by a subsequent decision by correcting or restoring the defect that constituted the reason for the annulment - retroactive treatment of the decision (Art. 137(6)(c)) cannot be annulled. Therefore, the General Meeting is entitled by a subsequent decision to confirm the previous defective decision, provided that it is annullable (a possibility that does not exist in the case of invalid decisions).

2. Legal effects of annulment:

In contrast to void decisions, voidable decisions of the General Assembly are not void as of right but develop their full effects until their nullity is declared by a final interlocutory court decision. The annulment of a decision of the General Meeting renders it invalid ex tunc, retroactively from its adoption (Art. 184 CC). Limitation on the retroactive effect of invalidity when it affects the rights of third parties acquired by the annulled decision or by an act carried out on the basis of the annulled decision, unless the third party knew or was grossly negligent in knowing or being unaware of the defect of the decision.

The annulment may be sought by any shareholder representing two hundred (2/100) per cent of the capital, within a period of four (4) months from the adoption of the decision or, if the decision is submitted to publicity, from its registration in the General Commercial Registry (GEMH), provided that the requesting shareholder either did not attend the meeting or opposed the resolution during the General Meeting. If a shareholder does not obtain the necessary percentage, he/she may only claim from the company compensation for the loss suffered due to the fact that the resolution was adopted by a General Meeting that was not legally convened (Article 137(4)).

C. Instead of a postscript

In conclusion, the convening of the general meeting plays a decisive role in the validity of the decision that the general meeting will subsequently take. The legislator, by weighing the seriousness of the defect, distinguishes between a complete lack of convening and an actual, but defective, convening of the General Meeting, giving different legal consequences in each case (automatic nullity in the first case - conditional nullity in the second).