Is a managing director-member (Ltd.) allowed to vote on his own mandate?

The analysis of the question included in the title – and for the sake of being exact, slightly complex – is interesting and is important from the practical aspect. Namely, in order to prevent disputes arising from the possible conflict of interest of the members of the company and the managing director-member, it is advisable to clarify this matter upon the voting and in order to avoid the possible inconveniences, which may occur after the voting.

I. Legislative background

In this respect, the legislative and the judicial practice has been consistent for years: in the process of adopting a members’ meeting resolution, the person for whom the resolution contained an exemption from any obligation or responsibility may not vote. According to the interpretation of the judicial practice, the member who is also a managing director may not vote on his dismissal from the managing director office at the members’ meeting, since the dismissal exempts him from obligations and liabilities. The Curia of Hungary held that the managing director-member shall not be allowed to vote in this case. A newly introduced provision was that the member may not vote if the resolution pertains to the establishment, content or termination of his corporate legal relationship with the company.

The issue outlined above is discussed by the 2013 Hungarian Civil Code as well. The Civil Code continues to uphold the regulation applied so far, thus the person for whom the resolution contained an exemption from any obligation or responsibility may not vote. In elaborating this, the Civil Code declares that any person who himself has a vested interest in the decision may not vote at the meeting of the decision-making body of the company. Making the provision even more exhaustive, the Civil Code clarifies that it does not grant voting right to the member who has managing director mandate in such cases.

II. The test of theory is practice

This line of thinking is supported by the judicial practice already mentioned: it declares with theoretical reference that if the member concerned is an executive officer, then such member shall be considered as a member prohibited from voting in respect of the members’ meeting resolution related to the establishment, modification or termination of the corporate law relationship of such member. The scope of the corporate law relationship with the company includes not only the membership but also the executive officer mandate as well.

III. The opinion of legal literature in accordance with the above

A uniform opinion has been formed in legal literature publications as well, namely: For the very reason of being concerned (personal interest), a person may not exercise his right to vote in any given matter if it may be presumed that his decision would not be based on the interests of the legal person primarily. In addition, due to the personal interest the member or the founder cannot be expected to form his decision based on the interests of the legal person exclusively, and therefore his participation in the voting would distort the result of the voting; such votes would not be suitable for reflecting the intention of the legal person.”

IV. Conclusion and budlegal recommendation

It follows from all of the above that the organically developing legislation and the judicial practice consistent therewith, as well as the legal literature form the opinion that the managing director-member may not vote on his own mandate as managing director at the meeting of the decision-making body of the company, since it has a guarantee significance related to avoiding the distortion arising from the inevitable conflict of interest.

Therefore, in order to avoid any legal dispute arising from the conflict of interest outlined above, it is worth seeking the advice and help of a legal counsel before the dismissal of the managing director and the appointment of a new managing director. Budlegal law firm offers its services in such cases as well, do not hesitate to contact us!

dr. Balázs Ács
trainee lawyer