General corporate loyalty principle in practice
Courts often deal with the issue of due managerial care. Persons and entities are obliged to act as a proper manager when managing a company's financial affairs. Less often, higher courts also deal with the principle of general corporate loyalty.
This principle concerns the relationship between the members of a corporation, usually a limited liability company or a joint-stock company, requiring them to act in the interest of the corporation as a whole and not just their own or that of a certain group of members. The general corporate loyalty principle emphasises acting in accordance with ethical standards, transparency, confidentiality, and the obligation to avoid conflicts of interest. This is particularly important when deciding on suspected breaches of the duty to act in the company’s best interests or abuses of a position of power for one’s personal benefit or the benefit of a narrow group of persons.
In judgment 27 Cdo 2232/2022 of 9 May 2023, the Supreme Court dealt with a case where the majority shareholder abused his right by repeatedly appointing a person chosen by him (his son and then his wife) as the liquidator, thus influencing the course of the liquidation. As a result, the company continued its activities during the liquidation process in a manner that suited him. The minority shareholder perceived this as harmful to his interests. In this case, the court put the principle of a shareholder’s general corporate loyalty towards the company above the majority shareholder’s rights and deduced that the majority shareholder, “by the weight of his votes repeatedly promoted a person close to him to the office of the liquidator, with the aim to ensure that the liquidation would proceed slowly, or not at all, and the company would continue to "function" until his claims were settled.” The SC further stated that the majority shareholder's conduct was contrary to the main purpose of the liquidation as expressed in the Civil Code and resulted in deliberate and unjustified delays in the liquidation. The court concluded that the majority shareholder’s conduct could be perceived as a lack of loyalty.
The general corporate loyalty principle is important for each and every member or shareholder, as it involves the obligation to maintain loyalty to the company. Its breach may give rise to the obligation to compensate for the damage incurred and potentially lead to the exclusion from the company, e.g., if the member or shareholder damages the company’s reputation or creates a negative image of its activities in public. Generally speaking, terminating one’s participation in a corporation is not easy and the conditions for voluntary departure can be very complex. Exclusion from the company is the last resort and must be done correctly, as its consequences are grave.