Romanian LLC/SRL - Revocation of the Partner-Administrator. Quorum and Majority. Evolution of Case Law. Grounds for Absolute vs. Relative Nullity of the General Meeting (GM) Resolution. GM Resolution Annulment - Active Legal Standing.

[1] Article 194, para. (1), letter b) of Law No. 31/1990: "(1) The General Meeting of Shareholders has the following main responsibilities: b) to appoint administrators and auditors, to revoke/dismiss them and grant discharge of their duties, as well as to decide on contracting financial audits when such audits are not mandatory under the law."

[2]  As a rule, for the second convening, Article 193, para. (3) of Law No. 31/1990 provides that: “If the legally constituted meeting cannot adopt a valid resolution due to the failure to meet the required majority, the reconvened meeting may decide on the agenda, regardless of the number of shareholders present and the portion of share capital represented by the attending shareholders.”

1.  " these legal provisions cannot serve as a basis for altering the company's operational rules or eliminating the double majority rule set out in the Articles of Incorporation, when all shareholders are present and exercise their voting rights" – Decision No. 602/A of October 11, 2022, Timișoara Court of Appeal.

2. The text refers specifically to the failure to meet the required majority, not to the failure to meet the quorum. Given that the majority shareholder X's favorable vote already ensures a majority of 50% + 1 of the company’s social shares from the first convening, the lack of quorum (minimum of two shareholders) could not trigger the activation of this provision for reconvening.

[3] Article 197, para. (1) of Law No. 31/1990:   "(1) The company is managed by one or more administrators, who may be shareholders or non-shareholders, appointed through the Articles of Incorporation or by the General Meeting of Shareholders."

[4] Article 7 of Law No. 31/1990 “The Articles of Incorporation of a general partnership, limited partnership, or limited liability company must include: e) the shareholders who represent and manage the company or non-shareholder administrators, their identification details, the duration of their mandate (applicable starting from 26.11.2022), the powers granted to them, and whether they are to exercise these powers jointly or separately.”

[5] Under Law No. 265/2022 on the Trade Register and for the amendment and completion of other normative acts related to registration in the Trade Register, in force since 26.11.2022.

[6] Article 194, para. (2) of  Law No. 31/1990:"For resolutions concerning amendments to the Articles of Incorporation, the vote of all shareholders is required, except where the law or the Articles of Incorporation provide otherwise."

[7] Article 196 of Law No. 31/1990:"The provisions applicable to joint-stock companies regarding the right to challenge general meeting resolutions also apply to limited liability companies. The 15-day period provided in Article 132, para. (2) shall begin to run from the date the shareholder became aware of the general meeting resolution they seek to challenge."

[8] Ruling No. 1597/2011 of 28/11/2011 - Commercial Disputes - Action for Annulment of the AGA Resolution - Constanța Court of Appeal - Second Civil Section, Administrative and Fiscal Litigation (C2 RECOURSE)

 “The dismissal adopted through AGA on 28.08.2011 entails an amendment to the Articles of Incorporation, a situation in which, according to Article 192, para. (2) of Law No. 31/1990, it had to be decided by all shareholders. The appellant’s claim that the appointment of administrator C______ D__ was not made through the company's Articles of Incorporation but rather through the AGA resolution of 22.12.2010, and that therefore the provisions of Article 192, point 2 of Law No. 31/1990 are not applicable, is unfounded, as the legal provisions do not provide any exception for this situation.”

[9] Decision No. 1754/03.11.2021 - Disputes with Professionals - Action for Annulment of the General Meeting Resolution - Bucharest Court of Appeal - 6th Civil Section

“Upon specifically analyzing the decision challenged in Resolution A__ No. 1406/03.08.2020, the I____ Tribunal erroneously held that, concerning the revocation of the claimant C_________ C___ from the position of administrator, the defendants correctly argued that the claimant lacks active legal standing, based on the provisions of Article 132(4) of Law No. 31/1990.

Legal doctrine has highlighted that this provision establishes a special procedural incapacity for administrators and members of the supervisory board regarding the ability to challenge their own dismissal decisions through an action for annulment. This reasoning stems from the ad nutum nature of the mandate, leading to the conclusion that if the principal could be forced to reinstate the revoked administrator, it would severely affect the very essence of mandate relationships.

These considerations remain valid even when the administrator is also a shareholder, as the issue at hand does not concern their rights and obligations as a shareholder, but rather the nature of their assignment by the company and the mandate conferred upon them.

According to unanimous doctrinal opinions, this prohibition has general applicability but is limited only to actions for annulment/nullity. However, it does not prevent dismissed administrators who were removed in violation of the law, the articles of incorporation, or their management contract (if applicable) from filing a civil liability action against the company.

Although recognizing this alternative may seem to address the right of access to justice as an integral part of the right to a fair trial, denying active legal standing to a revoked administrator-shareholder to challenge a GM resolution for nullity or annulment may lead to corporate deadlocks and, ultimately, the company's dissolution. This is particularly concerning when one of the primary motivations for partnership formation may have been the acquisition of administrator status and the exercise of executive power, as a guarantee of increased control over the company's activities.

It remains unclear to what extent damages would fully compensate for such a situation. The Cluj Court of Appeal has ruled that this legal provision must be applied cautiously, in light of ECHR jurisprudence, leaning towards the claimant's argument that when grounds for absolute nullity exist concerning the revocation decision, and the administrator is also a shareholder, they must be allowed to petition the court for the annulment of the GM resolution.

In Civil Decision _____/2016, the Cluj Court of Appeal held that a claimant who is both a shareholder and an administrator has active legal standing to request a declaration of absolute nullity concerning their dismissal as administrator.

The same reasoning underlies the doctrinal view that, in the case regulated by Article 132(3) of Law No. 31/1990, it is not necessary for a claimant to both vote against and record their opposition in the meeting minutes. A GM resolution can be challenged for absolute nullity even by a shareholder who voted in favor, considering that any other approach would contradict the legal nature of absolute nullity and could encourage fraudulent decision-making within general meetings.”

[10] "Where the law does not distinguish, neither can we distinguish." (Latin: Ubi lex non distinguit, nec nos distinguere debemus.)

[11] "The plaintiff's criticism regarding the incorrect application of the provisions of Article 192, para. (2) of the Companies Law (LSC) and Article 14.6 of the company's Articles of Incorporation is dismissed. Regarding the provision of Article 192, para. (2) of the Companies Law (LSC), it is deemed inapplicable in this case, considering both the resolutions adopted at the Shareholders' Meeting on September 29, 2008, and the relevant provisions of Law No. 31/1990.

From this perspective, it is noted that the plaintiff was the first administrator of the company, and the inclusion of their name and identifying details in the Articles of Incorporation was mandatory, according to Article 7 of the Companies Law (LSC). Article 192 LSC establishes a different voting quorum within the General Meeting of Shareholders, requiring unanimity only for amendments to the Articles of Incorporation (for other decisions, it institutes the rule of a double majority: of the share capital and of the shareholders).

Article 194 LSC establishes, as distinct responsibilities of the Shareholders' Meeting, both the appointment/dismissal of administrators and the amendment of the Articles of Incorporation. Moreover, Article 197 LSC provides that a limited liability company is managed by one or more administrators, who may be shareholders or non-shareholders, appointed through the Articles of Incorporation or by the General Meeting of Shareholders.

From the interpretation of these legal texts, the following conclusions emerge:
First, the administrator, who is required to be listed with their identification details in the company’s Articles of Incorporation, may be dismissed, replaced, or another administrator may be appointed through a subsequent resolution of the General Meeting of Shareholders.

The second conclusion drawn from the mentioned legal texts, also upheld by the judges of the lower courts, is that the dismissal of the administrator or the appointment of another administrator does not constitute an amendment to the Articles of Incorporation requiring unanimity. This conclusion arises from the way the powers of the General Meeting of Shareholders are regulated, where the power to dismiss/appoint an administrator is distinctly mentioned from that of amending the Articles of Incorporation.

Thus, considering that the first administrator is obligatorily mentioned in the Articles of Incorporation, if the interpretation given by the plaintiff were to be accepted, the legislator would have had no reason to include the specific power of appointing/dismissing an administrator, as it would have sufficed to mention the power of amending the Articles of Incorporation. However, by explicitly listing the separate power to appoint/dismiss an administrator, the legislator's intent is clearly defined as not considering such an appointment/dismissal as an amendment to the Articles of Incorporation.

Consequently, it is correctly determined through the appealed decisions that the provisions of Article 192, para. (2) LSC do not apply in the case of appointing a new administrator."

[12] "By the statement of claim, the appellant-plaintiff requested the annulment of the AGA both regarding their dismissal from the position of administrator and the appointment of administrator N.I.S., as well as the 'other modifications made through this shareholders' meeting,' invoking as grounds for nullity aspects related to the exercise of their voting rights.

According to Article 132, para. (2) of Law No. 31/1999, applicable also to limited liability companies based on the reference rule contained in Article 196 of the law, general meeting resolutions that are contrary to the law or the Articles of Incorporation may be challenged in court by any of the shareholders who did not participate in the general meeting or who voted against and requested this to be recorded in the meeting minutes.

It is true that according to Article 132, para. (4), administrators cannot challenge the general meeting resolution regarding their dismissal. This legal provision, in the case of a shareholder who also holds the position of administrator, has a special character in relation to the provisions of para. (2) of the same article and, like any special rule, is subject to strict interpretation and thus cannot be extended to situations other than those expressly specified.

Consequently, from the interpretation of the mentioned legal provisions, it follows that the shareholder may, under the conditions of Article 132, para. (2) of Law No. 31/1990, challenge in court any general meeting resolution EXCEPT FOR THE RESOLUTION REGARDING THEIR DISMISSAL FROM THE POSITION OF ADMINISTRATOR."

[13] “The court considered that the defendants' objection regarding the inadmissibility of the plaintiff's (X) claim was well-founded. According to Article 132, para. (2) of Law No. 31/1990, general meeting resolutions that are contrary to the law or the Articles of Incorporation may be challenged in court within 15 days from the date of their publication in the Official Gazette of Romania, Part IV, by any shareholders who did not participate in the general meeting or who voted against and requested this to be recorded in the meeting minutes.

Additionally, Article 132, para. (4) of the same law states that members of the board of directors and supervisory board may not challenge general meeting resolutions concerning their dismissal. Furthermore, Article 196 of the Companies Law establishes that the provisions applicable to joint-stock companies regarding the right to challenge general meeting resolutions also apply to limited liability companies, with the 15-day term provided in Article 132, para. (2) beginning to run from the date the shareholder became aware of the general meeting resolution they seek to challenge.

From the systematic analysis of the stated legal provisions, it is clear that administrators cannot challenge the general meeting resolution regarding their dismissal. The legal provision inserted in Article 132, para. (4) of Law No. 31/1990, in the case of a shareholder who also holds the position of administrator, has a special character in relation to the provisions of para. (2) of the same article. Consequently, the dismissal of administrators is excluded from judicial review, as it is a power exclusively granted to the corporate bodies designated by law. It cannot be ruled by a court, as the court cannot assess the existence or lack of trust shareholders have in administrators nor the appropriateness of their dismissal.

In light of the above, since in this case, the respondent-plaintiff challenged the resolution of the general meeting of shareholders (P2) S.R.L. No. 1/(...), through which they were dismissed from the position of administrator and a new administrator was appointed, the appellants correctly invoked the applicability of the provisions of Article 132, para. (4) of Law No. 31/1990, which apply to limited liability companies through the reference rule provided in Article 196 of the Companies Law.

The fact that the shareholder-administrator invoked grounds of absolute nullity regarding the AGA resolution dismissing them from the position of administrator does not automatically render applicable the provisions of Article 132, para. (3) of the Companies Law. These legal provisions establish that when absolute nullity is invoked, the right of action is imprescriptible, and the claim may be filed by any interested party. However, this article cannot be interpreted independently of the other paragraphs of Article 132, which determine the persons and conditions under which they are granted the right to challenge an AGA resolution.

In this regard, Article 132, para. (4) of Law No. 31/1990 provides a derogatory legal rule, stating that in the case of limited liability companies, administrators may not challenge general meeting resolutions regarding their dismissal, and these provisions are applicable to the present case.

If it were considered that an administrator who is also a shareholder could challenge the AGA resolution dismissing them from the position of administrator when invoking grounds of absolute nullity, then practically, Article 132, para. (4) would become inapplicable, given that a legal rule must be interpreted in the sense of its application, not in the sense that it should not apply."

[14] Solution for Admitting the Appeal and Modifying the Challenged Decision:

"By Decision No. 1626 of May 3, 2007, the High Court of Cassation and Justice, Commercial Section, in Case No. 5788/99/2005, upheld the appeal filed by the defendant SC A. SRL Iași against Decision No. 83 of September 11, 2006, of the Iași Court of Appeal, Commercial Section, which was modified in the sense that the appeal filed by the same party against Sentence No. 4 of February 23, 2006, of the Iași Tribunal, Commercial Section, was also admitted, modifying it entirely by rejecting the action brought by the plaintiff C.A. (shareholder and dismissed administrator) as inadmissible, which sought the annulment of Resolutions No. 2 of May 22, 2005, and No. 3 of May 22, 2005, of the defendant company.

By the mentioned decision, the supreme court clarified the legal issue concerning the inadmissibility of the plaintiff's action, which sought the annulment of the AGA resolution dismissing them from the position of administrator of the defendant company.

[…] Although res judicata cannot be invoked, since the decision in the annulment action concerning the same AGA resolutions was based on the exception of inadmissibility rather than the merits, it is established that the action currently pending, which seeks to declare the absolute nullity of the same AGA resolutions, is also inadmissible. This is due to the fact THAT THE EFFECTS OF NULLITY, WHETHER RELATIVE OR ABSOLUTE, ARE THE SAME, AND IN AN IRREVOCABLE RULING, THE COURT DETERMINED THAT FILING AN ACTION IN NULLITY REGARDING THE TWO AGA RESOLUTIONS IS INADMISSIBLE UNDER THE PROVISIONS OF ARTICLE 132, PARA. (4) OF LAW NO. 31/1990."

[15] "Secondly, from the systematic analysis of the cited legal norms, it can be easily deduced that the Romanian legislator does not consider the appointment and/or dismissal of administrators of a limited liability company as a modification of the Articles of Incorporation.

By correlating the provisions of Article 192 with those of Article 194, it results that the appointment and dismissal of administrators, whether they are appointed through the Articles of Incorporation or by a resolution of the General Meeting of Shareholders, DO NOT constitute a modification of the Articles of Incorporation of a company. Otherwise, it would not be justified why Article 194 expressly establishes this as a distinct responsibility separate from that of modifying the Articles of Incorporation, making it sufficient to mention only the latter.

For this reason, the provisions of Article 14.6 of the company's Articles of Incorporation do not apply in this case; instead, the provisions of Article 14.5 of the same act apply, according to which the General Meeting makes decisions by a vote representing the absolute majority of shareholders and social shares, as well as the legal norms governing decisions that do not represent modifications to the Articles of Incorporation adopted by the General Meeting of Shareholders [Article 192, para. (1), and Article 197 of the Companies Law].”

[16] Decision No. 833/2013 of 02/09/2013 – Professional Litigation – Action for Annulment of AGA Resolution
Constanța Court of Appeal

"According to Article 79 of Law No. 31/1990, a shareholder who, in a specific operation, has, on their own behalf or on behalf of another, interests contrary to those of the company, may not participate in any deliberation or decision regarding that operation.

The regulation on conflicts of interest applies equally to both shareholder-administrators and non-administrator shareholders, and the prohibition extends to both participation in deliberations and participation in adopting the resolution within the General Meeting (voting).

In cases where the shareholder abstains, the quorum and the majority required for adopting that resolution are calculated based on the total number of participants present or represented, minus the shares belonging to the shareholder in a conflict of interest. […]

From this perspective, the dismissal of the claimant D___ C_______ from the position of administrator was carried out in accordance with the decision of all shareholders who could legally exercise their voting rights, specifically the second shareholder: E_____ D_______ (Schweiz) X GMBH.

The claimant’s objections regarding the failure to meet quorum and majority requirements, in relation to this agenda item, lack legal foundation and will be dismissed as irrelevant to the case.

Furthermore, according to Article 132, para. (4) of Law No. 31/1990, administrators may not challenge the General Meeting’s resolution regarding their dismissal from office."

[17] "The provisions of Article 132, paragraph (4) of Law No. 31/1990 are unequivocal regarding this prohibition and are a continuation of the provisions of Article 79, paragraph (1) of Law No. 31/1990 ('A shareholder who, in a specific operation, has, on their own behalf or on behalf of another, interests contrary to those of the company, may not participate in any deliberation or decision regarding that operation'), correlated with those of Article 126, paragraph (1) of Law No. 31/1990 ('Shareholders who are members of the Board of Directors, the Directorate, or the Supervisory Board may not vote, based on the shares they hold, either personally or through a proxy, on the discharge of their management or any issue in which their person or administration is under discussion'). 

Since the shareholder-administrator does not have the right to vote in general meetings where their administration is being discussed, they also do not have the right to contest their dismissal from office, nor the appointment of new administrators or the general director. The appointment of new individuals responsible for administrative management is a natural consequence of the dismissal measure. 

The dismissal of an administrator is most often followed by the appointment of another administrator in place of the dismissed one. If the right of the shareholder-administrator to contest the appointment of the succeeding administrator were admitted, it would lead to a situation where the dismissal itself would be rendered ineffective. In other words, under the pretext of contesting the appointment of the new administrator(s), the shareholder-administrator could invalidate their own dismissal, either by reinstating themselves as an administrator or by leaving the company without an administrator or general director (in cases where the AGA resolution is annulled only in the part concerning the appointment of a new administrator or general director while maintaining the part regarding dismissal from office). In both situations, the shareholder-administrator would override the will of the General Meeting, nullifying the decision to dismiss them, which is not permitted by law. 

The appellate court, by admitting that the respondent-claimant I.M. had active procedural standing, annulled the AGA resolutions regarding his dismissal from office, despite the fact that Article 132, paragraph (4) of Law No. 31/1990 imperatively states that administrators may not request the annulment of AGA resolutions concerning their dismissal. 

Even if the entire above legal-logical reasoning were disregarded, the claimant, in their status as a genuine third party, still cannot challenge the AGA resolutions that are the subject of this case. 

For the provisions of Article 132, paragraph (3) of the Companies Law to apply to the claimant 'as a third party,' it must be observed that, according to the law, a third party must be 'any interested person.' Therefore, the interest of the third party must be legitimate, and their interest is clearly distinct from that of the shareholders."