Personal liability of the president of the board for late shareholders meeting

What?

In the article of 23 June 2022 I pointed out that in case of a late convened general meeting the company could be left without directors. In another decision of the Federal Supreme Court (No. 4A_128/2021) it is shown that the late convening of the general meeting has in this case led to a personal liability of the chairman of the board of directors. The shareholder, who had to force the holding of the general meeting by filing a lawsuit against the company, sued the president of the board of directors for payment of the legal costs incurred in the proceedings. She claimed that the chairman had damaged the company, as his delay in holding the general meeting had made the costly action to convene the general meeting necessary.

The court of first instance found that the chairman of the board of directors had culpably breached his duties and thus caused unnecessary costs for the company. It ordered him to pay CHF 24,247.90 plus interest to the company. The Federal Supreme Court protected this judgement.

The judgement is very interesting for two reasons:

• successful lawsuits based on liability under company law are rather rare, especially if the company is not bankrupt at the time of the lawsuit
• the constellation of the lawsuit was also special: The shareholder did not sue for her own damage and demand payment of damages to herself. She sued for damages suffered by the company and demanded (and obtained) payment to it.

So What?

The personal liability of the chairman (or another member) of the board of directors hits him particularly hard if he

1. does not have cover under a professional indemnity insurance policy (D&O liability) or
2. has a high deductible on such an insurance policy.

Do What?

It is once again evident that courts are inclined to assume that directors and officers have breached their duties, when clear legal requirements have been violated, in this case the deadline of 6 months from the end of the business year for convening the general meeting of shareholders. The “formalities” under company law must be strictly observed at all times.