Court authorisation to convene an extraordinary meeting of shareholders of a limited liability company

The Polish Code of Commercial Companies contains a number of provisions which protect minority interests. One of those provisions says that shareholders who represent at least 1/10 of the share capital may be authorised by the court to convene an extraordinary meeting of shareholders of a limited liability company (Article 237 of the Code of Commercial Companies, hereafter: CCC). This mechanism is meant to remedy situations in which company authorities do not respond to requests to convene a meeting. It is also an extension of the shareholders' right to request the convention of a shareholders' meeting pursuant to Article 236 CCC. The practice shows, however, that the application of this provision is not only difficult but, above all, time-consuming.

 
Convening an extraordinary meeting of shareholders of a limited liability company following a court authorisation – formal requirements and the procedure:

1. Request to the management board to convene a meeting of shareholders
   In the first place, the minority shareholders must use their right to request the management board to convene a shareholders' meeting. The request should be made in writing and include the proposed date of the meeting and the meeting agenda. It must be filed with the management board at least a month before the requested date. The request for convening an extraordinary meeting of shareholders must be justified, so that the management board has a chance to respond to it. It should be noted that the CCC provides for minority shareholders’ rights only in respect of convening extraordinary meetings of shareholders and contains no similar provisions regarding ordinary meetings.
2. Request for court authorisation to convene a shareholders' meeting
   If the two-week deadline counted from the day the request is filed with the management board lapses to no effect, the shareholder(s) who filed the request can apply to the registry court for an authorisation to convene a shareholders' meeting. The application must meet the formal requirements of a statement of claim, contain the request for authorisation to convene a shareholders' meeting and specify the meeting agenda. It must also invoke the request for convening the shareholders' meeting which was ignored by the management board. The applicant must prove his right to file the request, that is, he must demonstrate that he holds the required share in the company’s share capital.  The application may also indicate a person whom the court may appoint to chair the meeting. The application should include a copy of the request for convening an extraordinary meeting of shareholders which the minority shareholder(s) submitted to the management board and a confirmation that the management board received it. This application carries a court fee of PLN 300.

Court procedure before granting the authorisation

First, the registry court must call on the management board to explain why they did not convene the meeting. The management board may affect the registry court's ruling by delivering reasonable and convincing explanations, especially if it demonstrates that the application was unjustified and the convening of the meeting would cause too much organisational or financial effort. In the event the management board does not respond to the registry court’s request within the deadline set for this purpose, the court may issue a relevant decision if the case is clear.  If the court has any doubts, it can continue the proceedings according to general principles. Such proceedings take at least a few months at each level of jurisdiction. The ruling of the court of first instance can be appealed to the regional court, which protracts the proceedings for another several months. This is because the meeting can be only convened after the decision of the relevant court becomes legally binding, so in the case of a dispute the proceedings may also involve an appeal. 

In its ruling the court indicates the persons who are authorised to convene the meeting and sets the deadline for them to do it (usually 3 months). 

Costs of convening and holding the meeting of shareholders

Once the meeting of shareholders is convened, shareholders must resolve on the costs of convening and holding the meeting. The shareholders decide on whether it is the limited liability company which has to bear those costs (Article 237(2) CCC). At the same time, the amendment of the said article has given a new right to shareholders on whose request the meeting is convened. Since 1 January 2017 they may apply to the registry court for releasing them from the obligation to cover the costs imposed by the shareholders’ resolution.

This is a right that shareholders may but do not have to exercise. In a similar vein, the court may accept such an application, but it may also reject it if it finds that the application is unjustified.

 
Just as an aside, I could be noted that the registry court rules on the shareholder’s application for being released from the obligation to pay the costs imposed by the shareholders’ resolution in a court procedure that is distinct from and that follows the procedure for obtaining the court’s authorisation for convening the extraordinary meeting of shareholders.

Practical issues related to obtaining authorisation from the court

The described procedure is extremely time-consuming and largely inefficient in practice. The time necessary to meet all legal requirements connected with the minority shareholders going to court for authorisation to convene an extraordinary meeting of shareholders quite often paralyses the company's decision-making ability. Additionally, the court is bound by no deadline to decide on such applications and has to wait each time until the company or shareholder delivers a reply or until the deadline set for it passes with no reply provided. If the proposed decisions go against the interest of the management board members, they may effectively drag the proceedings. Another problem arises when there are no actual management board members in the company, and the application aims to overcome this deadlock while, simultaneously, the shareholders do not want to get involved or cannot reach a unanimous consensus. The court authorisation to convene such a meeting should help to solve such problems. However, in practice, especially in conflict situations and where capital is dispersed, it may turn out that requesting a meeting will only make the decision deadlock more acute.

Articles of association can solve the problem

 
The above-mentioned problem can be effectively solved by introducing a provision in the articles of association which gives the minority shareholders (representing at least 10% of the share capital, depending on the ownership structure) the right to convene an ordinary or extraordinary meeting of shareholders in case the management (or another body) does not do it for any reasons despite a request. Such a provision is often missing in the articles of association, yet it helps to avoid a lengthy and, in practice, hardly effective court procedure for obtaining authorisation to convene a meeting.