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A Breakthrough Decision of the Superior Court in Prague on the Invalidity of Shareholder Agreements by Which Certain Shareholders Aim to Ensure Appointed Directors Follow Their Instructions when Managing a Company

20.05.2019

The Superior Court in Prague, acting as a court of appeal, in its decision file no. 14 Cmo 23/2018, ruled that provisions of shareholder agreements in which shareholders aim to ensure appointed directors follow the shareholders’ instructions when managing the company are invalid. Wordings of shareholder agreements and voting agreements that shareholders utilize to try to ensure appointed directors do their bidding when managing the company – sanctioned by a contractual penalty – are invalid as contradicting law, which states that directors cannot be instructed in the management of the company, including the use of funds and credit matters. The above-mentioned decision may have far-reaching consequences for joint venture structures.