Legality of corporate governing body decisions

Ruling of the Supreme Court of Lithuania on the legality of corporate governing body decisions

Supreme Court of Lithuania Ruling on the Legality of Corporate Governing Body Decisions

The Supreme Court of Lithuania (LAT) issued ruling No. e3K-3-294-823/2021, addressing the legality of corporate governing body decisions.

In this case, the plaintiff, a company shareholder holding 60% of shares (while the third party owned 40%), sought to invalidate a decision made at an extraordinary general meeting to amend the company’s bylaws. The amendment required a qualified two-thirds majority vote for the appointment and removal of the company’s CEO and board members.

Key Findings of the LAT Ruling:

1️⃣ Risk of Deadlock: Given the long-standing shareholder conflict, the bylaw amendment, which required near unanimous agreement, could lead to decision-making deadlock, effectively paralyzing the company’s governance and harming business operations.

2️⃣ Imbalance in Shareholder Rights: The bylaw changes favored the third party, expanding its control over the company’s management, while significantly limiting the plaintiff’s decision-making power.

3️⃣ Bad Faith Decision-Making: The third party’s argument that the changes would stabilize the company’s governance was ultimately a pretext to increase its control. The decision was made against the plaintiff’s will, using voting rights from shares originally transferred by the plaintiff, which the court deemed not in good faith (bona fide).

This ruling underscores the importance of fair decision-making in corporate governance and the risks of bylaws that disproportionately benefit one shareholder while restricting another.

Ruling of the Supreme Court of Lithuania on the legality of corporate governing body decisions

Key Findings of the LAT Ruling:

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