The Judgment (nº 357/2017) of the Provincial Court of Barcelona, ​​Section 15, dated September 12, 2017, resolved, on appeal, the challenge of some decisions adopted at the general meetings of shareholders of a Spanish corporation on June 4, 2013 and June 14, 2014 that approved the remuneration of the sole director of a limited liability company.

In short, the case is as follows: it is a family corporation in which the two plaintiffs, who are brothers, had just over 21% and the other brother, who happened to be the director, was the owner of slightly more than 73% (we understand that the remaining 6% was in the possession of another person). The equity incorporated into the company (real estate assets under lease management) came from the father of the three brothers. The director was the heir and the other two brothers had to litigate to see their legitimate rights to the legal succession recognized. The director was receiving since 1993 a fairly homogeneous remuneration in his condition as director. The plaintiffs base the challenge in the consideration that the resolutions are contrary to the interest of the corporation, since they claim that the fixed salary is disproportionate, because it represents approximately a percentage close to 20% of the company’s income and it is not correlated with the value of the services provided.

This judgement is of interest in two senses: on the one hand, by the invocation made of the “corporate interest” and the scope of its legal nature (although this analysis is done superficially) and, on the other hand, by the examination of the retribution of the directors of a corporation.

In relation to the “corporate interest”, the Magistrate maintains that <<the invocation of the “corporate interest” as the object of the infringement of the social resolutions constitutes a valuable mechanism of defense of the interests of the minority in front of the possible abuses in which could have incurred the majority when approving the decisions>>.

It is necessary, then, to determine if the decisions were contrary to the corporate interest. In this regard, the assessment contained in paragraph 12 of the Judgment is noteworthy: <<the majority can not, on the basis of the principle of free enterprise, adopt the decisions it deems best suited to their own interests, although they can be seriously damaging or harmful to the minority. The corporate law does not tolerate the tyranny of the majority and therefore relies on a third party, the judge, to control the excesses in which they could have incurred. The instrument through which the judge is entrusted with the protection of minority rights consists in the protection of the corporate interest>>. There is abuse of rights when the majority adopts corporate decisions with clear disregard for the interests of the other members, and particularly, when the role of director is held by the majority shareholder, to the extent that the fixing of excessive remuneration can become an instrument through which the majority imposes a distribution of benefits different to the one that is determined pursuant to their respective stakes in the company capital. It is on this basis on which judicial protection must be based, that is, by means of a minimum control of reasonableness (in order not to replace the will of the general meeting), with the analysis of the existence or not of abuse of rights.

And based on the previous premises the Magistrates conclude that the contested decisions are null and void on the grounds that they are detrimental to corporate interest.