Legal impasse: who is liable when shareholders fail to take decisions?

In practice, it is often the case that a company's shareholders, because of internal disagreements or conflicts, do not take decisions that only they can take. Such inaction complicates corporate governance and decision-making and, at the same time, creates the risk of the manager being held liable for failing to fulfil his/her statutory duties.

As Karolina Briliūtė, Senior Associate at AVOCAD, points out, even when the CEO has no realistic opportunity to fulfil his or her duty - for example, to present a set of financial statements because the shareholders do not approve them - the CEO is still responsible.

Both the Civil Code and the Companies Act provide for broad limits to the liability of the manager. The CEO is responsible for organising the company's day-to-day operations, ensuring that reports are prepared and submitted to shareholders for approval. However, only the General Meeting of Shareholders can approve the set of annual financial statements - and without this decision, the manager cannot transmit the documents to the Centre of Registers.

"This creates a paradox - the law requires the manager to submit certified accounts, but the manager does not have the right to certify them. This leaves him between two conflicting requirements - the obligation and the actual possibility of fulfilling it", comments an AVOCAD lawyer.

Shareholder conflicts - a manager's responsibility?

When a set of financial statements is not approved because of shareholder conflicts, the authorities often impose administrative liability on the CEO. In such cases, no circumstances, even objective ones, normally remove the manager's liability.

"Even in the case of an apparent shareholder dispute that is not resolved, the authorities usually apply a formal assessment - they do not look at the reasons, but at whether the obligation has been fulfilled," says K. L. Briliūtė.

Case law has established that neither disputes between shareholders nor the fact that shareholders do not approve a company's annual accounts for certain reasons, which may be subjective, is considered sufficient to exclude liability. The courts also note that, even if shareholders deliberately block the adoption of decisions, this does not reduce the liability of the manager for the formal failure to perform his duties.

"This means that a manager can be punished for actions that he or she could not objectively perform. This situation raises questions about the balance of justice - whether the formal imposition of liability in all cases is in line with the rule of law", she notes.

Although there are cases in the case law of the Court of Cassation where objective circumstances are taken into account, these precedents remain rare. In some cases, the courts have held that the gravity of the act and the actual violation of the shareholders' rights must be taken into account when assessing the liability of the manager. However, in most cases, the liability of the manager remains formal, irrespective of the consequences or context.

There are few legal options for the CEO. One of them is to go to court to order the shareholders to take a decision. However, such a process can take several years and costs, during which time fines can continue to be imposed on the manager.

"In this situation, court proceedings can only be a solution in the long term, but they do not prevent new fines and can only create a legal precedent in the long term," points out K. L. Briliūtė.

In conclusion, she stresses that treating the circumstances more favourably for the manager is the exception rather than the rule. Therefore, according to Karolina Briliūtė, it is important for the authorities to take into account objective circumstances beyond the manager's control when assessing the imposition of administrative liability, especially when shareholders deliberately delay or block decision-making.

"A manager's responsibilities should be assessed in a holistic way, taking into account not only the formal requirements but also the actual possibilities of implementing them. Otherwise, the manager becomes a hostage to a situation created by legally independent shareholders", she concludes.