Annual report of limited liability company can be approved by court
The Estonian Supreme Court stated in recent ruling that in case a shareholder of a limited liability company unjustifiably refuses to vote in favour of approval of an annual report, the consent of the shareholder can be substituted by a corresponding court resolution.
The above is primarily applicable in cases where management board has drafted a correct annual report, but (a) one or several shareholders vote against approval of the annual report and (b) without their consent the report can not be approved. Typical example is a company where shares are divided 50-50.
The Supreme Court also noted that shareholder shall not be allowed to veto approval of the annual report in order to achieve compulsory dissolution of the company and corresponding division of its assets. In case of deadlock, company’s general interests should be preferred to individual interests of shareholders. This means that should the annual report be correct then general interests of the company require that shareholders voted in favour of approval of the annual report.
Considering the above, should any of the shareholders unjustifiably veto approval of the annual report, other shareholders may bring an action against such a shareholder and request that the approving vote of the shareholder be substituted by a court resolution. That way shareholders can avoid compulsory dissolution of the company.
Judgment of the Supreme Court can be accessed here (in Estonian).
Author: Andreas Veeret