Kuwait Supreme Court judgment – the procedures for general assembly meetings of limited liability companies and the invalidation of resolutions
Dispute Resolution / Kuwait
Kuwait Supreme Court mandates notifying the Ministry of Commerce and Industry for LLC general assembly meetings, or resolutions are invalid.
Law Update: Issue 368 - Technology, Media & Telecoms Focus
Khaled YoussefSenior Associate,Dispute Resolution
The Kuwaiti Court of Cassation issued a recent judgment (Judgment 20 of 2023 dated 9 May 2023) which considers how Kuwaiti limited liability companies (LLCs) handle general assembly meetings. The court held that the resolution did not comply with required statutory procedures for convening an extraordinary general assembly meeting. The legal basis and court’s reasoning for invalidating the resolution pertained to the requirements of calling for the meeting and sending invitations prior to holding a general assembly meeting. The judgment is unique because the facts of the case demonstrate that the appellant company had followed the procedures which were commonly understood to be applicable. This judgment may open the door for more cases in the future where the court invalidates general assembly meetings and the resolutions adopted based on the same commonly misunderstood procedures in this regard.
The Appellant brought Action No. 2574-2022 [Government - Commercial/Civil-Full Bench] against the Respondent, in his official capacity, seeking judgment confirming the authentication of resolutions passed at a general assembly meeting of the Appellant Company, dated 21.05.19, and directing that said resolutions be noted on the records of the Respondent, in his official capacity. The Appellant submitted that, at a Company general assembly meeting, held on said date, a resolution was passed to increase its capital. The Company notified the Respondent, in his official capacity, of the resolution but he did not take the necessary action.
The Court of First Instance ordered the Respondent, in his official capacity, to confirm the authentication of the resolution passed at the general assembly meeting, dated 21.05.19, and record it in the Commercial Register.
The Respondent appealed (Appeal No. 3001-2022 [Government – Commercial/Civil]) and, on 22.11.22, the Court of Appeal set aside the primary decision and dismissed the action.
The Appellant filed an appeal in cassation, and the Public Prosecution recommended that the appeal be dismissed.
The Appellant argued that the Court of Appeal erred in law by setting aside the primary decision and dismissing the action based on lack of evidence that the Respondent, in his official capacity, he did not receive at least 7 days’ prior notice of the proposed general assembly meeting, when limited liability companies are not subject to such procedures.
The Court of Cassation dismissed the Appellant’s appeal. The Court of Cassation held that Articles 111, 115, 234 (last paragraph) and 206 of Law No. 1 of 2016 indicate that the legislator has regulated the procedure for calling ordinary and extraordinary general meetings of LLC’s by referring, for this purpose, to the procedure for calling a general meeting of a closed shareholding company. As peremptory rules of law, this procedure is also the governing procedure for calling meetings within LLC’s. The Court pointed out a key issue: Chapter 10 of the Companies Law lacks specific regulations on calling meetings for closed shareholding companies which, according to the law, are applicable to LLCs. To address this gap, the Court ruled that the law made reference to the procedures outlined for calling regular general meetings in public shareholding companies (as specified in the last paragraph of Article 234). The procedure for calling a general meeting, quorum and voting, in the case of a public shareholding company, is subject to the provisions relating to the founding assembly. It is that procedure then that must be followed when calling an ordinary or extraordinary meeting of an LLC.
It is settled in the Court of Cassation that the provisions of Law No. 1 of 2016 promulgating the Companies Law are intended to serve a public economic interest, namely the economic entity of the state. Such interest holds supreme societal value and prevails over individual interests. A violation of this interest would compromise and impact the economic entity of the state. In totality, these are matters of public policy. Article 142(2) of the Companies Law, which regulates the procedure for calling the founding assembly of a public shareholding company, applies to the procedure for calling an ordinary or extraordinary meeting of an LLC. In other words, an ordinary or extraordinary meeting of an LLC must be preceded by at least 7 days’ prior written notice to the Ministry of Commerce and Industry of the proposed meeting’s agenda, time, and place. Such notice is peremptory procedure whose violation results in nullity as a matter of public policy.
The Court of Appeal set aside the primary decision and dismissed the Appellant’s action based on lack of evidence that the Appellant company had given the Respondent, in his official capacity, notice of the agenda, time, and place of the proposed general assembly meeting, which took place on 21.05.19. The Appellant does not dispute these facts. The Court of Appeal properly applied the law given the invalid procedure followed when calling a general assembly meeting. The Appellant’s contentions on appeal are baseless and the cassation appeal will be dismissed.
In Kuwait, it was common practice for directors of limited liability companies (LLCs) to convene general assembly meetings without notifying and inviting the Ministry of Commerce and Industry (MOCI) (this notice would include the agenda of the meeting, and its date and venue). Previously, when resolutions of general assembly meeting of LLCs were submitted to the MOCI, the MOCI would not verify whether an invitation of the meeting was sent to the Ministry or not, and would normally authenticate the general assembly resolution without running this check.
As mentioned above, Article 111 of the Companies outlines the procedures for inviting participants to general assembly meetings of LLCs, without requiring an invitation to the Ministry of Commerce and Industry (MOCI). The procedures for general assembly meetings of closed shareholding companies also apply to LLCs. However, the Companies Law does not provide specific procedures for general assembly meetings of closed shareholding companies. In fact, the provisions related to closed shareholding companies are limited and not comprehensive. This said, Article 234 of the Companies Law states that unless otherwise provided, the provisions related to public shareholding companies are applicable to closed shareholding companies, referencing the Companies Law articles regulating the procedures for convening general assembly meetings of public shareholding companies. Article 206 of the Companies Law addresses general assembly meetings of public shareholding companies and states that the procedures applicable to the founding assembly concerning inviting to GA meetings, and the voting and attendance quorum, shall apply to public shareholding companies.
Accordingly, it can be inferred from the above that the provisions applicable to the founding assembly shall apply to public shareholding, closed shareholding, and limited liability companies. Article 142 of the Companies Law states that an invitation to attend the founding assembly must be sent to the MOCI at least seven days before the meeting, and the invitation shall include the agenda, the time and venue of the meeting.
In its judgment, the Supreme Court held that, unless otherwise provided, the provisions relating to general assembly meetings applicable to the founding assembly of shareholding companies should apply to LLCs. The court concluded that although Article 111 did not require notifying the MOCI of general assembly meetings of LLCs, it made reference to the procedures applicable to closed shareholding companies. As mentioned above, the procedure for calling a general meeting, quorum and voting, in the case of a public shareholding company, is subject to the provisions relating to the founding assembly. This procedure then must be followed when calling an ordinary or general assembly meeting of an LLC.
This judgment is important as confirms the procedures for convening general assembly meetings for limited liability companies & the invalid procedures that could potentially lead to annulment of the resolution if the MOCI is not notified.
For further information,please contact Khaled Youssef.
Published in May 2024
