A general meeting’s resolution can also be annulled by erroneous financial statements

Or, as the folk saying goes – measure twice, cut once.

Shareholders exercise their rights through general meeting, which is also the highest governing body of a public limited company (aktsiaselts – AS). The rules for summoning a general meeting and all its processes are precisely set out in the Commercial Code – shareholders do not participate directly in the company’s management.

But if those rules have been broken, it is possible to contest the resolutions of a general meeting, both to identify their original nullity and to apply for declaring them invalid. Here, the difference lies in the fact that a valid resolution remains in force until a court declares it invalid, but a void resolution is void from the start, i.e., it is like they never made that resolution.

A clear opinion in the Supreme Court

In its recent adjudication, the Supreme Court found that both resolutions of general meetings as well as financial statements approved by such resolutions could be discussed in that context. Therefore, under contesting a general meeting’s resolution, financial statements can also be contested. The reasoning is that the general meeting approving the year’s financial statements gets the content of the meeting precisely from those financial statements.

Financial statements for an economic year must provide fair and correct information about both the company’s economic results and its financial status, therefore any information that was left undisclosed in financial statements but which may have significance for economic decisions to be made on the basis of the financial statements is significant in this context.

The protection of debtors’ interests is important here and if the financial statements provide a significantly incorrect view of the enterprise’s financial status then the provisions protecting creditors are considered violated. It is for that reasoning that a general meeting’s resolution approving such financial statements is void. This rule is also set out in the Commercial Code, §301(1)1). The Court also considered it necessary to mention that minor shortcomings and deviations in the financial statements do not affect the validity of the resolution.

Did it badly – do it again

The nullity of a general meeting’s resolution approving financial statements must be identified by a court, but the law does not set out a specific time limit for protecting one’s rights. But as financial statements themselves must be presented compulsorily, not only the incorrect data of the financial statements must be corrected but also a new general meeting must be summoned. In that, the procedural rules set out in the Commercial Code must be followed, so that a deviation from the procedure to summon a general meeting would not become the grounds for nullity of the general meeting’s resolution in turn. All of the above is similarly valid to private limited companies (osaühing – OÜ).