An end to statutory representative and proxy-holder acting jointly
A proxy-holder acting jointly with a statutory representative: is this what is recorded in your company’s entry in the Commercial Register? If so, you have a problem, as indicated by a recent Supreme Court decision, responding to the inconsistent practice applied by courts maintaining the Commercial Register when recording the manner in which statutory bodies act on behalf of limited liability companies. The court regards the statutory representative and the proxy-holder acting jointly to be against the sense and purpose of the law.
In its October decision, the Supreme Court dealt with whether a company’s memorandum of association may determine that the statutory representative together with the proxy-holder act on behalf of the company as its statutory body. The law itself is very inexplicit in this respect, leaving the specification of the manner in which the statutory body can act on behalf of a company to the memorandum of association. In principle, the law only prescribes that each statutory representative acts on behalf of a company independently unless the memorandum association determines otherwise. According to the Supreme Court, any modification to the basic statutory rule is only possible within the statutory body. This means that the memorandum of association may determine the joint acting of more than one statutory representative but may not authorise persons that are not statutory body members such as proxy-holders to act in the power of a company’s statutory body.
The Supreme Court went even further in its contemplation and held that the joint acting of the statutory representative and the proxy-holder is a null and void juridical act, despite the fact that many authors of professional literature regard the joint acting of the proxy-holder and the statutory representative as an acceptable method of representing a corporation, especially in cases when a greater number of statutory representatives have been appointed and may not act independently. The court believes that the memorandum of association may not award unlimited power to act on behalf of a company to any third person that is not a statutory representative, thus making this person equal with the statutory body. The court is of the opinion that such a provision of the memorandum of association violates public policy.
Even though we may argue about the Supreme Court’s conclusions in many respects, it can be expected that the courts maintaining the Commercial Register will succumb to the Supreme Court’s ruling and will not enter the proxy-holder and the statutory representative acting jointly in the Commercial Register in the future. Corporations that use this type of representation, following an example from, e.g., the German legal environment, should therefore immediately reassess their position in this respect, as their representation may be null and void.