Null and void or voidable? The consequences of a general meeting that starts too early
Imagine you arrive at the general meeting of shareholders (GMS) exactly on time, as stated in the notice of meeting, only to hear that the meeting has already been closed and the resolutions have already been passed. Can you simply ignore those resolutions because they “do not exist”, or do you need to rush to court to have them annulled? For entrepreneurs, directors and shareholders, this is not a theoretical question. In a recent ruling, the Supreme Court clarified the legal classification of an AGM that starts too early: nullity or voidability. In practice, this classification determines whether you can still do anything, and above all, how quickly.
A void decision or a voidable decision?
In company law, a distinction is made between two types of defective decisions by corporate bodies, such as the AGM or the board: a void decision (Section 2:14 of the Dutch Civil Code) and a voidable decision (Section 2:15 of the Dutch Civil Code). The difference is essential. A void decision is invalid by operation of law: from a legal point of view, the decision has no effect and is deemed never to have had any legal consequences. Anyone with an interest in the matter can invoke that nullity without first awaiting a court ruling. In the case of voidability, the situation is different: the decision is in principle valid and enforceable until a court annuls it at the request of an interested party. Moreover, anyone who takes action too late may lose their right to annulment.
When is a decision void?
The law links nullity to a violation of the law or the articles of association. In practice, this often involves serious, fundamental flaws in the decision-making process: for example, the absence of a required quorum, failure to meet a statutory or legal voting threshold, the bypassing of an essential right of approval, or decision-making that affects public order or morality. These are situations in which the rules for valid decision-making have been violated so profoundly that the legal order does not accept the decision.
When is a decision voidable?
Annulment (Section 2:15 of the Dutch Civil Code) mainly concerns defects in the procedure or in the manner in which the decision is made. This may involve a conflict with statutory or legal provisions governing decision-making, a conflict with regulations, or acting contrary to the principles of reasonableness and fairness that apply within the company (Section 2:8 of the Dutch Civil Code). The first point is particularly important for entrepreneurs: errors in the notice of meeting, agenda, location, provision of information or meeting order can lead to a decision being voidable. Classic pitfalls include, for example, too short a notice period, voting on an item that was not on the agenda or failing to correctly involve persons who have an (advisory) vote.
Which case ended up before the Supreme Court?
The case that ended up before the Supreme Court involved a family business with a layered structure via a trust (STAK) and share certification. Four brothers held indirect interests in an operating company. The governance was structured in such a way that the brothers had limited control rights in each other’s personal management companies via a preference share. The articles of association of those management companies also contained a blocking arrangement: the transfer of shares to third parties was in principle excluded, with an exception for transfers to their own children.
In this setting, one of the brothers convened a shareholders’ meeting in his own management company, with the subject of an amendment to the articles of association concerning the blocking arrangement. The notice of meeting specified a clear start time. Two other brothers arrived punctually at that time, but found that the meeting had already ended. The brother who had convened the meeting had started earlier, held the meeting without the late-arriving shareholders and had already implemented the amendment to the articles of association. The amendment had major consequences: after his death, the shares would not revert to the brothers, but would pass to a cousin through a family line.
When the convening brother later died and the consequences of the amendment to the articles of association became apparent, a shareholder dispute arose.
The remaining brothers argued that the decision was invalid because they had effectively been sidelined and had not been given the opportunity to participate in the discussion or vote. Their position was clear: if the decision were null and void, they could continue to invoke it; if the decision were merely voidable, they would have to file an action for annulment within the statutory period.
What was the key question?
The key question was therefore: what is the legal status of a decision taken at a meeting that starts earlier than the announced time, as a result of which not all those entitled to vote can participate in the deliberations and decision-making? The Supreme Court applied a well-known standard from case law: valid decision-making within a legal entity presupposes that everyone with the right to attend meetings or vote (including those with an advisory vote) is actually given the opportunity to participate in the deliberations and, in the case of those entitled to vote, to vote. In plain language: if you do not give someone with decision-making rights the opportunity to participate, you are violating a basic rule of corporate democracy.
The important point, however, is what sanction applies in such cases. The Supreme Court has clarified that starting the AGM too early, with the result that not all those entitled to vote can participate, must be regarded in legal terms as a violation of the rules governing the formation of decisions. This falls under Article 2:15(1)(a) of the Dutch Civil Code and therefore leads to annulment, not nullity. In other words, such a decision does exist for the time being and can have effect, but it can be annulled by the court if an interested party initiates proceedings in time.
What is important in practice?
The time limit is particularly important in the practice of business law and corporate governance. The power to request annulment expires one year after the interested party has taken note of the decision or could have taken note of it (Article 2:15(5) of the Dutch Civil Code). So if you have been excluded from a shareholders’ meeting that started too early, you need to act quickly: request the minutes and decision documents, record when you heard about the decision, and consult a commercial law solicitor to assess whether annulment proceedings are necessary. Waiting could mean losing your most important legal remedy, while the decision is simply implemented in the meantime (e.g. in the case of an amendment to the articles of association, appointment of directors, dividend decision or share transfer).
The lesson is clear: an AGM that is convened too early is not a “free pass” to make decisions unassailable, but neither does it automatically result in a void decision. It is a voidable decision, with a strict expiry date. For directors and shareholders, this is a practical warning. Organise meetings strictly in accordance with the notice of meeting and the articles of association, monitor the start time and access, and ensure that all those entitled to attend and vote can actually participate. For entrepreneurs faced with a questionable decision, the following applies: take swift action, because in cases of voidability, time is often the decisive factor.
Advice
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