Obtaining the consent of the company’s bodies (e.g. the General Meeting or the Supervisory Board) is one of the obligations that is most often overlooked by company representatives in the course of doing business. Why is this so important? In some cases, failing to obtain the appropriate consent may render a transaction invalid.
The Commercial Companies Code provides for two different consequences in the event of a breach of this obligation, depending on whether the obligation arises from statutory provisions or from the company’s articles of association.
Consent required by law
Where the obligation is imposed by law, the consequences of failing to obtain consent for a transaction are far-reaching, namely that the transaction is invalid.
For example, in a limited liability company, the consent of the shareholders, expressed in the form of a resolution, is required for, but not limited to:
- The disposal or lease of the enterprise or an organised part thereof and the establishment of a limited right in rem thereon (Article 228(3) of the Commercial Companies Code, KSH)
- The acquisition or disposal of real property, perpetual usufruct or an interest in real property, unless the articles of association provide otherwise (Article 228(4) of KSH)
- The reimbursement of additional payments (Article 228(5) of KSH)
It should be noted that the consent may be given before the company makes a declaration, or subsequently, but not later than two months after the declaration is made. Consent given after the declaration has been made has retroactive effect from the date of the transaction.
Importantly, the requirement to obtain the appropriate consent to act extends to all representatives of the company, not just its management board. Therefore, such consent will also be required if the company is represented in some other way, e.g. by an attorney or a holder of a commercial power of attorney.
Consent required by the Articles of Association
The situation is different in the event of a breach of the obligation to obtain consent arising from the company’s articles of association. In such a case, the legal transaction is valid, but this does not exclude the liability of the management board members to the company for breach of the articles of association.
In capital companies, a relatively common procedure is to include in the articles of association a list of matters requiring consent of the shareholders or the company’s supervisory board.
This solution allows shareholders to exercise ongoing control over, for example, significant agreements that the management board intends to enter into. In such a case, the list of matters should be adapted to the nature of the company’s business, its size and its ownership structure.
In practice, it is very common for consent to be required if the value of a particular transaction exceeds a certain threshold or is outside the ordinary course of the company’s business.
Company representatives must be aware that if they carry out a transaction without the consent required by the articles of association and this results in a loss/damage to the company’s assets, they may be held liable for damages to the company.
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