Loyalty of a member of the Statutory body of a joint-stock company (or a executive director of a limited liability company)
At the end of this year, there is not that many legislative news, which would be generally relevant for all entrepreneurs, as usual. Not only the Czech legislature, but also the Czech courts can introduce changes for entrepreneurs. One of the interesting and important case law for entrepreneurs in 2019 is the decision of the Supreme Court of the Czech Republic on the obligation of a statutory body members to give priority to the interests of the company over their own, or over any interests of third parties.
Limits on the obligation to perform the function of a member of the Statutory body of a joint-stock company (or a executive director of a limited liability company) with due loyalty
In the decision made on April 25, 2019, File No. 27 Cdo 2695/2018 the Czech Supreme Court once again reminded, in accordance with the existing case-law, that the due manager’s care also includes the obligation of due loyalty, i.e. the obligation of a statutory body members to give priority to the interests of the company over their own, or over any interests of third parties, including the interests of those shareholders, who voted him into the function in the statutory body by the weight of their votes. This obligation is binding to the statutory body members, so to speak, "24 hours a day, 7 days a week". Therefore, a member of the statutory body should not, without proper reason, do anything which is manifestly contrary to the interests of the company, even if such member is not currently acting as a member of the statutory body.
“That does not mean that a member of the statutory body cannot legitimately defend any other interests than those of the company; for example, when acting in his/her own affairs. In such cases, the member of the statutory body in principle can (and usually will) defend his or her own interests. In situations, where such personal interests’ conflict with the interests of the company (e.g. when concluding contracts with the company), the legal regulation of a conflict of interest applies, which states, as a general rule (unless otherwise provided by law), that a member of the statutory body cannot act on behalf of the company. ” In this particular case, the member of the statutory body could (generally speaking) defend his own interests of the landlord (including the interest in receiving the due rent payments), but he was not entitled – with regard to the conflict of interest between him and the company – act on behalf of the company in the matters of the lease. “If such member of the statutory body took over (based on his own decision) the notice for payment of the rent on behalf of the company, as well as the subsequent withdrawal from the lease agreement (unless he handed such documents over to the other member of the statutory body), he acted on behalf of the company in a matter in which he was not entitled to act in. Consequently, neither the notice for payment of the rent nor the withdrawal from the lease agreement was effectively delivered to the company. As a result, this member of the statutory body breached his duties, and therefore he was obliged to compensate the company for the caused damage.
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