The Supreme Court rendered the 106-Tai-Shang-57 Civil Decision of March 7, 2017 (hereinafter, the “Decision”), holding that for a shareholders’ meeting convened pursuant to a resolution adopted by a board meeting which is invalid due to illegal convocation procedure, it should not be directly concluded that a resolution adopted during the shareholders’ meeting does not stand or is invalid since the shareholders’ meeting still convened based on what appears to be a resolution adopted by the board of directors.
According to the facts underlying this Decision, Individual A asserted that he was a shareholder and supervisor of Company B, and that the directors and chairman of Company B had illegally convened a board meeting in which a resolution was adopted to convene the shareholders’ meeting at issue without notifying Individual A to attend the board meeting and had resolved during the shareholders’ meeting at issue to distribute earnings and re-elect directors and supervisors (hereinafter, the “Resolution of the Shareholders’ Meeting at Issue”). Therefore, a preliminary complaint was filed to declare that the Resolution of the Shareholders’ Meeting at Issue did not stand or was invalid before a later complaint was filed to set aside the Resolution of the Shareholders’ Meeting at Issue.
It was first pointed out in the Decision that although the Company Law is silent about the effect of such resolution adopted during a board meeting in which the supervisor had not been notified to attend and state his/her opinion, still the objective is to have a supervisor provide different viewpoints to the board of directors for discussion as an objective and impartial third party. Therefore, the resolution adopted during the board meeting in which the supervisor had not been notified to attend and state his opinions should be invalid. The resolution adopted in this case during a meeting convened by the board of directors without notification to the supervisor should be invalid.
However, it was further pointed out in the Decision that although the resolution of the board of directors to convene a shareholders’ meeting was invalid due to illegal convocation procedure of the board meeting, still the resolution appeared to be a resolution adopted during a board meeting and was relied on for the convocation of the shareholders’ meeting. This is different from the circumstances where a shareholders’ meeting is convened by individuals who do not have the right to do so. Therefore, it could not be directly concluded that the resolution adopted during the shareholders’ meeting did not stand or was invalid. Instead, it could only be deemed defective in the convocation procedure. If the fact of violation is not material and has no bearing on the resolution, the complaint to set aside the resolution may be rejected.
It was further held in the Decision that Individual A had attended and participated in the voting in the shareholders’ meeting at issue without raising any objection against the convocation procedure of the shareholders’ meeting and received the distribution of earnings. Therefore, Individual A actually had a chance to object to the defective organization of the shareholders’ meeting during the shareholders’ meeting at issue. In addition, the re-elected directors and supervisors had been inaugurated and executed their duties and the defective organization of the board meeting at issue would not substantively affect the outcome of the Resolution of the Shareholders’ Meeting at Issue and undermine the interest of Company B. Therefore, it should be deemed that the defect in the convocation procedure of the shareholders’ meeting at issue was not material. Individual A’s appeal was ultimately rejected on for the above reasons.