Legal Updates

Veto rights in the articles of association will not apply when it is activated in lack of good faith or not for the good of the company

March 11, 2020
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An investor invested USD 50 million in a company that develops medical devices to test blood sugar levels and by doing so diluted the entrepreneur to below 50%. It was agreed that the entrepreneurs receive veto in certain cases, including the replacement of the CEO. At a board of directors meeting that dealt with serious allegations against the entrepreneur, acting as the company's CEO, the entrepreneurs left the meeting and after leaving, a decision was made to terminate the entrepreneur's term as CEO of the company and as chairman of the company's board of directors, and regarding the change of signing rights.
The Court rejected the motion for an injunction relief to prevent the decision from being consummated. When providing temporary remedies regarding the management of a company, the Court will also consider the interests of the company, the interests of shareholders, employees and the public that is in contact with the company. A shareholder or director who has privileged rights in the articles of association or may veto certain decisions must exercise such rights in fairness and with as a fiduciary of the company, in order to prevent unrestricted and unrestrained power to a minority that may harm the interests of the majority and the interests of the company. Here there were harsh claims about how the company was managed by the CEO and due to the good faith and fairness requirement, the entrepreneurs should not prevent the replacement of the CEO and the chairman of the board and therefore they can not use the veto right to prevent the CEO's replacement.

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