Resolution to Dismiss Director May Be Annulled Due To 'Violation' of Director's Voting Right?
A discussion of the judgment of the Dutch Supreme Court of 22
December 2009, NJ 2010/16; JAR 2010/20
The Facts
S. was appointed director of HGIH B.V. in January 1978. Since
2001 S. has been working as CEO under an employment agreement with
HGIH B.V. On 7 December 2003 the general meeting of shareholders of
HGIH B.V. (the "GM") resolved outside a meeting to
dismiss S. as director with immediate effect. S. had been informed
of this by telephone by M., who was not a member of any body of
HGIH B.V.
On 5 January 2004 the GM confirmed the resolution of 7 December
2003 to dismiss S. S. had been invited to this meeting in order to
be heard about his dismissal and to give his advisory vote. S. did
not accept this invitation. On 9 February 2004 a board meeting was
held at which the remaining directors resolved to terminate the
employment agreement with S. with immediate effect.
In the opinion of S. the resolution to dismiss him as a director
was passed contrary to Section 2:227 (4) of the Dutch Civil Code
("BW"), since he was not given the opportunity to cast an
advisory vote about this resolution. Section 2:227 (4) of the BW
provides the following: "The directors and the members of the
supervisory board shall have an advisory vote at general meetings
in that capacity." S. is of the view that pursuant to Section
2:15 of the BW, the resolution to dismiss him may be declared a
nullity due to violation of the above Section. The Court allowed
the claims of S. and the Court of Appeal upheld the judgment of the
Court. HGIH B.V. then appealed to the Supreme Court.
The Judgment of the Supreme Court
First of all, the Supreme Court held that Section 2:227 (4) of the
BW (directors having an advisory vote at a general meeting) applies
also to resolutions passed outside a meeting.
The Supreme Court furthermore considered the opinion of the Court
of Appeal, that S. had not been given sufficient opportunity to
cast his advisory vote in this case, not to be incomprehensible.
The Court of Appeal held that the fact that S. had been notified by
M. - who was not a member of any body of HGIH B.V. - by telephone
of the resolution to dismiss him, was insufficient to be regarded
as an invitation from the shareholder to S. to react to the
relevant resolution or to express his advisory vote. This means
that the dismissal resolution was not lawfully passed and may be
declared a nullity pursuant to Section 2:15 of the BW.
Finally, the Supreme Court held that the annulment of a resolution
of a legal entity body entails that the resolution was not legally
valid from the start.
Points of Attention
- In the event of a projected dismissal resolution, it is
important to offer directors sufficient opportunity to use
their power to cast an advisory vote. The same is true with
regard to resolutions passed outside a meeting.
- If it is held that a director was not given sufficient
opportunity to cast his advisory vote regarding a projected
dismissal resolution, this entails that the relevant resolution
was not legally valid from the start. This may have
consequences for the employment relationship between the
director and the company. Case law of the Supreme Court makes
clear that a legally valid dismissal resolution by a body of
the company in principle also results in termination of the
employment relationship, except in cases where a statutory
prohibition to give notice of termination applies (for example
in the case of illness or pregnancy) or the parties have agreed
otherwise.
- If these last mentioned exceptions do not apply, it should
be taken into account that a resolution for dismissal not
lawfully passed precludes the 'automatic' cutting of
both the company-law and employment-law ties, so that the
employment agreement will not have ended, with all the
associated (financial) consequences.