The challenge of corporate resolutions in the Companies

By challenging corporate agreements, administrators, partners or third parties may rescind the agreements of a company. This institution exists to allow the cancellation of illegal acts or contrary to the Bylaws or to the interests of the company. It is configured, therefore, as a system of protection of the social interest and minority partners, as well as the legality of the company.

In order to use this tool, a lawsuit must be filed, but before doing so, it is advisable to study the requirements for challenge and legitimacy. And it is that not all corporate agreements are challengeable, nor can anyone promote the challenge action.

In our article today we want to delve into the challenge of corporate agreements, a key instrument to guarantee respect for the legal system, the Bylaws and Internal Regulations and the social interest of the minority partners.

What social agreements can be challenged?

The Capital Companies Law (LSC) establishes a challenge system aimed at streamlining both the management of the company and the workload of the Courts. Thus, challenging a social agreement requires a compelling reason. You cannot challenge agreements that are not harmful, nor those that present irrelevant flaws or defects. 

In a positive sense, the LSC determines that corporate resolutions contrary to the Law, the Bylaws or the Regulations of the Meeting are objectionable. Also, those that harm the corporate interest for the benefit of one or more partners or third parties.

It is understood that an agreement that damages the corporate heritage harms the corporate interest. But also, that which is imposed abusively, thus establishing a protection clause for minority shareholders. Thus, agreements that generate unjustified damage without responding to a reasonable need of society may be challenged.

What agreements are shielded? 

The LSC also prohibits a series of challenges. In particular:

1.- The one of agreements that have been without effect or have been replaced by others before filing the challenge demand. If the claim has already been filed, the judge will terminate the procedure for the object's supervening disappearance.

2.- The one that is based only on procedural requirements for the convocation or constitution of the body or the adoption of the resolution, unless they are relevant. For example, the period prior to the call or the majorities necessary to adopt the agreement.

3.- The one based on insufficiency or incorrectness of the information provided by the company, unless this is essential for the reasonable exercise of the vote.

4.- That based on the participation of persons not legitimized, unless their intervention has been decisive to constitute the body.

5.- The one that brings cause of invalidity of any of the votes, unless they are decisive for the achievement of the required majority.

Who can file a claim to challenge corporate resolutions?

Any of the administrators and third parties who demonstrate a legitimate interest may file a challenge. Members who have acquired their status before the adoption of the agreement can also do so, provided that their participation represents at least one percent of the capital. 

In this sense, it is important to emphasize that the condition of partner is not lost until the shares or participations are liquidated. In other words, if a partner has notified the exercise of their right of separation but the company has not yet paid their participation in the capital, nothing will prevent them from filing the claim to challenge the agreement. 

We must also emphasize that by statute, the capital percentages required to file this lawsuit can be reduced. In addition, even if the injured partners do not reach a sufficient participation in the capital to present the challenge, they will continue to be entitled to compensation for the injury derived from the challengeable act. 

On the other hand, it should be remembered that agreements contrary to public order are open to challenge by any partner, administrator or third party.

When must the challenge claim be filed?

The expiration period of the action to challenge corporate resolutions is one year. This will begin to count from the date of adoption of the agreement, provided that it is adopted in a board or meeting. If the agreement is adopted in writing, the term will begin to run from the receipt of the copy of the minutes. And in case of having registered, it will compute from the date of enforceability of the registration. 

As an exception and given that one of the causes of challenge is contrary to public order, if this were the basis of the claim, there will be no statute of limitations or expiration.

How does the procedure for challenging corporate resolutions work?

This procedure begins by means of a lawsuit filed against the company. Members who have voted in favor of the agreement may object. 

To settle the matter, the procedures of the ordinary trial will be followed, the Civil Procedure Law being fully applicable. However, before starting the trial and at the request of the defendant company, the judge will grant a reasonable period of time to eliminate the cause of challenge, whenever possible.

If the Judgment determines the nullity of the agreement, it will be registered in the Mercantile Registry. In addition, it will entail the repair of the legal situation prior to the agreement and the cancellation of the registration of the agreement and all subsequent entries inconsistent with the Judgment.

This is an extremely technical procedure, so it is advisable to have the advice of a law firm specialized in Corporate Law before challenging a social agreement or defending its validity.

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