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Invalidity of an irregularly convened general meeting: the “useful vote” theory
06.14.2024
Cass. com., 29 mai 2024, n° 21-21.559 (published)
Legal issue
Is it mandatory to invalidate a shareholders’ meeting that has been improperly convened?
The Court’s answer
No. Only if (i) the irregularity deprived the shareholder of his right to take part in the meeting and (ii) his participation was such as to influence the outcome of the decision-making process.
“It follows from [article L. 223-27 of the French Commercial Code] that the failure to properly convene a shareholder of a limited liability company to the company’s general meeting only renders the deliberations of that meeting null and void if this irregularity deprived the shareholder of his right to take part and was of such a nature as to influence the outcome of the decision-making process.”
Analysis
- The French Supreme Court (Cour de cassation) has traditionally held that the nullity of a shareholders’ meeting of an SA (art. L. 225-104 c.com.) or SARL (art. L. 223-27 c.com.) that has been improperly convened is only optional.
- Until now, the French Supreme Court refused to apply the “useful vote” theory to shareholders’ meetings (Cass. civ. 3ème, July 8, 2015, no. 13-27.248; Cass. com., March 28, 2006, no. 02-13.852) and to boards of directors (Cass. com., April 24, 1990, Bull. civ. IV, no. 125).
- The theory of the “useful vote” or “effective vote” consists of admitting the invalidity of decisions adopted only when the shareholder’s participation in the meeting would have enabled him to influence the outcome of the vote.
- Unlike the Cour de cassation, the Paris Court of Appeal frequently applied it when the shareholder held only a small shareholding, particularly in the absence of a blocking minority (CA Paris, March 27, 2001, no. 2000/12023).
- Recently, however, in other circumstances, the Cour de cassation has used the same formula conditioning nullity on influence on the “outcome of the decision-making process” to (i) circumscribe nullity in cases where a third-party had participated in collective decisions in a SARL (Cass. com., October 11, 2023, no. 21-24.646) and (ii) extend the sanction of nullity to collective decisions taken in violation of the articles of association of a SAS (Cass. com., March 15, 2023, no. 21-18.324).
- However, the theory of the “useful vote” conflicts with the right of every shareholder to participate in collective decisions.
- By restricting the judge’s power to declare the meeting null and void, the Cour de cassation has added to Article L.223-7. Contrary to what it states, it does not “follow [from] this text” that nullity would be limited to cases where the shareholder’s absence was such as to influence the outcome of the vote.
Assessment
One can understand the interest in restricting cases of nullity for irregular convocation. But making nullity conditional on the impact that the shareholder’s participation may have had on the outcome of the vote deprives the (minority) shareholder of an essential attribute of his status, by reasoning solely in terms of voting rights and ignoring the importance of discussions in the decision-making process. Recourse to the “useful vote” is therefore as useless as it is inappropriate.
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