The Supreme Court of Lithuania has ruled on the division of competences between the managing director and the general meeting of shareholders.
Previously, there was disagreement as to whether the powers of the managing director could be limited, i.e. in which cases the consent of the general meeting must be obtained for decisions of the managing director. The background was that the Lithuanian Companies Act (AktGG) provided a list of possible limitations. However, it was unclear whether this list was to be considered exhaustive or whether further restrictions not mentioned in the law could be laid down in the articles of association.
In a case before the Supreme Court, the issue was that a new version of the articles of association provided that the prior consent of the general meeting was always required for certain acts by the managing director, such as discussing and approving the management structure and positions in the company, decisions on establishing or participating in other legal entities, and decisions on establishing branches or representative offices.
The question to be clarified was to what extent such restrictions on the powers of the managing director contradicted the provisions of the Lithuanian Civil Code and the Companies Act. According to the Companies Act, prior consent of the general meeting of shareholders may be required in the company’s articles of association only for the cases specified in the Act (listed in Article 34(4)(3), (4), (5) and (6) of the Companies Act), which are taken by the company’s managing director if no board of directors is formed.
According to the Supreme Court, the cases listed in the AktGG are not an exhaustive list. Accordingly, other cases could also be provided for in the articles of association. In addition to the case law of the Court of Appeal, the court also referred to the provisions of the German GmbH Act and the European Model Company Act (EMCA) drafted by the European Group of Company Law Experts in 2017.
According to the court, consent also does not mean that the general meeting takes over the competence of the managing director (executive board), but that the general meeting participates in company decision-making by establishing a procedure for decision-making by the managing director (executive board). Despite the requirement to obtain consent, the managing director (board) remains responsible for decisions and the consequences of decisions. Consent does not mean a limitation of the managing director’s powers, but establishment of the process for decision-making.
Judgment of the Lithuanian Supreme Court of 2 December 2021 in civil case No e3K-3-300-313/2021