Following the law is not always lawful

Is it a good idea to suddenly start strictly complying with legal formalities when a conflict arises among the partners of a company?

By their very nature, companies are usually governed by dynamics where pragmatism and agility take precedence over strict compliance with formalities.

Thus, it is common in legal practice to find companies that have traditionally not convened meetings, or that consider resolutions as adopted without an actual meeting having taken place, or even -and this would deserve a separate article due to the risk it implies for the administrator- that certify resolutions without having drawn up the mandatory minutes.

This is the usual approach when relations among partners are smooth and friendly, when mutual understanding prevails over conflict and the business is thriving. There is little to reproach when such an arrangement is successfully managing a business that creates value, employment, and offers products or services relevant to the market.

However, for all sorts of reasons, disagreements or misunderstandings may eventually arise among the partners, who then become misaligned regarding common and personal goals.

These unforeseen circumstances are what is commonly referred to as a conflict.

Therefore, it is also common in corporate practice to see that informal methods are suddenly replaced by a strict adherence to legal formalities. Where previously meetings were called informally, now the statutory provisions are meticulously followed.

This is the issue addressed in the judgment of the Provincial Court of Barcelona dated 23 October 2023, which rules on the nullity of resolutions adopted at a partners’ meeting where one of the partners -the one who challenges the resolutions -was summoned in accordance with the law, and at his official address, but did not actually receive the notice.

Here, the prestigious 15th Section of the Provincial Court of Barcelona reminds us once again -a recurring issue- that summoning a partner in accordance with the law is not lawful when the convening director knew in advance that the partner would not receive the notice.

The court reaches this conclusion after examining the proven facts, among which is that the notice of the meeting was sent to the partner’s official registered address, even though the partner had previously requested the meeting by sending a burofax that stated a different address than that of the law firm advising him regarding the meeting.

The Court also considers it evidence that the director was aware the notice would not be received, due to the fact that, unlike in the past -when relations were amicable and notices were sent by email or personally -this time the notice was sent only to the official address.

Moreover, the Court notes that once the convening director received confirmation that the notice had not been delivered, he made no effort whatsoever to notify the partner by other means.

The Court reminds us that directors have a general duty of care in the interest of the company, adding that this corporate interest is also that of its partners. Therefore, the director must safeguard that interest. In the Court’s view, the convening party -the director- knew in advance that the notice would be ineffective, and therefore declares the nullity of the resolutions adopted at the meeting.

Although the ruling does not explicitly cite it, Article 7 of the Civil Code -and particularly paragraph 2- hovers in the background. It reads: “The law does not protect the abuse of rights or their antisocial exercise.” […]

Ultimately, and as a piece of advice, it does not seem wise to abruptly switch from an informal style to a sudden, scrupulous, and overly formal compliance with the law. As we can see, when such actions harm a partner, the courts tend to consider them abusive practices, striking down the resolutions and sending those who engaged in them back to square one, along with all the frustrating effort involved.

So, what would be the recommended modus operandi? Because it seems clear that continuing with informal practices may no longer be a viable option when conflict arises.

Our recommendation in these situations is to warn, using the usual communication channels, that from that moment on legal formalities will be strictly observed, and that the partners should therefore pay close attention to the statutory and legal provisions governing their rights. Forewarned is forearmed. Only then should the formal approach be followed, making it much harder for the partner to challenge it.

Nuestro consejo en estas situaciones sería advertir, por los canales habituales, que en lo sucesivo se va a proceder de manera escrupulosa con el cumplimiento de la legalidad y que por tanto deberán estar atentos a las disposiciones legales y estatutarias que les competen para el ejercicio de sus derechos. El que avisa no es traidor. Después se podrá actuar de manera formal, y el socio tendrá más difícil