Cancellation of a Shareholders' Resolution for an Improperly Called Meeting — An Analysis of Supreme Court Judgment No. 6555/2567

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A common problem in companies whose shareholders are in conflict

In a limited company whose shareholders hold nearly equal stakes — for example 50:50 or 51:49 — one side often wants to remove the other side's director from the board. Knowing that if a board meeting were actually called the opposing director would object or might simply not attend, that side instead sends each director a letter and asks them to "vote" on paper.

Supreme Court Judgment No. 6555/2567 answers this question clearly: that method is unlawful, and it makes the notice of meeting, the meeting itself, and the resolutions that follow unlawful as well, giving the court grounds to cancel them.

Facts of the case

The company (anonymized in the judgment as Company "Ch.") had 3 directors. The applicant held 25,000 shares, the first respondent held 24,999 shares, and the second respondent held 1 share, out of 50,000 shares in total. Instead of calling a board meeting to resolve to convene an extraordinary general meeting (EGM), the first respondent sent a letter dated 15 January 2020 (B.E. 2563) asking each director to mark "approve" or "disapprove" and return it within 7 days, with the results to be tallied on 23 January 2020.

The applicant received the letter but did not reply. The two respondents then treated this as a 2-of-3 majority resolution to call an extraordinary general meeting, which was held on 16 February 2020. At that meeting a resolution was passed removing the applicant as a director of the company.

The principle laid down by the Supreme Court

The Supreme Court began with the text of Section 1172, paragraph one, which provides:

"The directors may summon extraordinary meeting whenever they think fit."
— Civil and Commercial Code, Section 1172, paragraph one (English text as published in the Thailand Law Library, library.siam-legal.com; unofficial translation)
Thai original: "กรรมการจะเรียกประชุมวิสามัญเมื่อใดก็ได้สุดแต่จะเห็นสมควร"

The Court held that the word "directors" in this section means the board of directors as a whole, not any single director. For the "board" to resolve to call an extraordinary general meeting, the following sequence must be followed:

The heart of this principle is that, although the law does not prescribe the form a board meeting must take, a "meeting" necessarily means that the directors deliberate together and exchange views before voting. Sending each director a letter to vote individually, with no joint discussion, therefore does not meet the legal meaning of a "meeting".

Key passages from Supreme Court Judgment No. 6555/2567

The passages below are the Supreme Court's own words in the judgment, which can be cited directly in legal argument. (Unofficial translation; the Thai original follows each passage.)

Legal consequence: the defect flows through to every subsequent step

The Supreme Court held that once the originating board resolution was unlawful, the notice of meeting, the meeting, and the resolutions that followed from it were unlawful as well, as the diagram below shows.

Using the judgment as a precedent: when does it apply?

Supreme Court Judgment No. 6555/2567 can be cited as a precedent in the following situations.

How to cite this judgment

When citing this judgment in a legal letter, an objection, or an application to the court, identify it as follows.

Ratio decidendi: "For the board of directors to resolve to call an extraordinary general meeting of shareholders under Section 1172, paragraph one, of the Civil and Commercial Code, the company's directors must jointly deliberate and exchange views on the matter to be considered before voting. Sending the directors a letter to vote, without a board meeting being called and without joint deliberation, does not constitute a lawful meeting and resolution of the board."
Thai original: "การที่คณะกรรมการจะมีมติเรียกประชุมวิสามัญผู้ถือหุ้นตาม ป.พ.พ. มาตรา ๑๑๗๒ วรรคหนึ่ง กรรมการของบริษัทต้องร่วมกันในการปรึกษาหารือและแลกเปลี่ยนความคิดเห็นกันเกี่ยวกับเรื่องที่จะประชุมก่อนลงมติ การส่งหนังสือให้กรรมการลงมติโดยไม่มีการนัดเรียกประชุมและปรึกษาหารือร่วมกัน ไม่ถือเป็นการประชุมและการลงมติของคณะกรรมการโดยชอบ"

What if the directors on one side refuse to attend?

A frequent question is whether, once a board meeting has been called, the directors present can still pass resolutions if the directors on the other side refuse to attend. The answer is yes, provided a quorum is present. That is, notice of the board meeting must first be duly given, within the period required by the company's articles of association (if any). If the directors on one side receive the notice but choose not to attend, the directors who do attend may pass resolutions as long as their number constitutes a quorum. The quorum for board meetings is as fixed by the company's articles of association or by the board itself under Section 1158 and Section 1160. Where nothing has been fixed and the company has more than three directors, three directors must be present; for a company with three directors or fewer, Section 1160 fixes no number, so the articles should be checked on quorum before the meeting is called. Once a quorum is present, decisions are taken by majority under Section 1161.

The crucial difference from the case discussed here is that where directors "do not attend", a meeting was in fact "called"; in the case decided by Judgment No. 6555/2567, no meeting was "called" at all. They are therefore two different situations.

The right to apply for cancellation under Section 1195: a deadline to watch

A shareholder harmed by a resolution passed through an unlawful process may apply to the court to cancel that resolution under Section 1195 of the Civil and Commercial Code, but the application must be made within one month from the date of the resolution. Section 1195 provides: "If a general meeting has been summoned or held or a resolution passed contrary to the provisions of this Title or contrary to the regulations of the company, the Court shall, on application of any shareholder or director, cancel any resolution passed at such irregular meeting, provided that the application is entered within one month after the date of the resolution." (English text as published in the Thailand Law Library; unofficial translation.) The period therefore runs from the date of the resolution, even if the applicant learns of the resolution only later.
Thai original: มาตรา ๑๑๙๕ "การประชุมใหญ่นั้น ถ้าได้นัดเรียกหรือได้ประชุมกัน หรือได้ลงมติฝ่าฝืนบทบัญญัติในลักษณะนี้ก็ดี หรือฝ่าฝืนข้อบังคับของบริษัทก็ดี เมื่อกรรมการหรือผู้ถือหุ้นคนหนึ่งคนใดร้องขึ้นแล้ว ให้ศาลเพิกถอนมติของที่ประชุมใหญ่อันผิดระเบียบนั้นเสีย แต่ต้องร้องขอภายในกำหนดเดือนหนึ่งนับแต่วันลงมตินั้น"

When to seek advice

Eksiam Chaisorn, a legal consultant whose practice covers partnership, company and business law, can advise both on setting up a legally correct procedure before you act and on protecting shareholders' rights once a dispute has arisen.