The general regulation of the rules of decision-making of collective bodies of legal entities is contained in the second title of the first part of Act No. 89/2012 Coll., the Civil Code, as amended (hereinafter referred to as the “Civil Code”). For the purposes of this article, the following are particularly relevant: Section 156 par. 3 of the Civil Code, according to which collective bodies are quorate in the presence or other participation [1] of the majority of members and decide by a majority of votes of the participating members, and Section 158 par. 3 of the Civil Code, which allows legal entities to enshrine in the founding legal act a regulation according to which, in the event of a tie in the decision-making of an elected body, the vote of the chairperson shall be decisive.

However, in the relations of the supervisory board of a joint-stock company, these general rules of the Civil Code do not apply to a large extent due to the special legal regulation contained in Act No. 90/2012 Coll., on commercial companies and cooperatives (Business Corporations Act), as amended (hereinafter referred to as the “BCA”). In relation to the casting vote in collective bodies, this special regulation is contained in Section 44 par.3 of the BCA, according to which the collective body elects a chairman, whose vote is decisive in the event of a tie. The founding legal act may also grant a casting vote to another member of the supervisory board, or explicitly exclude the institution of a casting vote.[2] While according to the provisions of the Civil Code, the founding legal act may (optionally) determine that in the event of a tie in the decision-making of the elected body of a legal entity, the vote of the chairperson (i.e. the person who chairs a specific meeting of the collective body) is decisive, the BCA is based on the rule according to which the vote of the chairman (not the chairperson) is decisive – this terminological deviation must be kept in mind.

However, we would look in vain for a similar deviation from the standard provisions of the Civil Code in relation to the quorum of the supervisory board of a joint-stock company, for which it is therefore valid that it is able to quorate with the presence or other participation of the majority of members, calculated from the number of members of the body according to the articles of association, regardless of their current (non-)staffing.[3]

According to Section 449 par. 2 of the BCA, the supervisory board shall decide by a majority of the members present. However, this is a unilaterally dispositive rule, where the determination of the number of votes required to adopt a decision is limited to the fact that it is a majority decision, even if derived from any number of votes (of course, provided that a quorum is maintained). Companies can thus use the dispositive nature of the given regulation and modify the majority required to adopt a decision, e.g. for different categories of decisions, or generally by setting the limit of an absolute majority of all members of the supervisory board (i.e. not only the members present at the meeting).

Although this option (a supermajority of all members) is often used in corporate practice, there may be some ambiguities regarding the required ratio of votes for the adoption of a supervisory board decision, which can be illustrated in the following example. For the purposes of this example, let us imagine a supervisory board of eight members, where the presence of a supermajority of all members is necessary to maintain a quorum, and the same majority is also required to adopt a decision.

In the case of full attendance at a meeting of the supervisory board, a situation may seem unclear when four of the members of the supervisory board vote for and against the adoption. At first glance, it may seem that the decision cannot be adopted in the given case, since the absolute majority (at least five votes) was not achieved. However, the rule of the chairman's casting vote, as foreseen by law, applies here; if the voting with full attendance ends in a tie, the specific proposal is adopted or not adopted according to how the chairman voted in the specific case. In terms of the significance of the chairman's vote, there is no difference between a situation where the law or the articles of association require a majority of votes "present" for the adoption of a decision, and a situation where a majority of "all" is needed – in both cases, it is true that from a purely mathematical point of view, a majority of votes of individual members was not achieved when the chairman's casting vote was activated, and it is precisely in such a situation of equality of votes (i.e. in a situation where a majority was not achieved) that the law, through the rule of the chairman's casting vote, allows the decision to be adopted even without achieving a mathematical majority.

This rule cannot be understood as meaning that the chairman of the supervisory board would have an extra vote (which is not permitted by the mandatory provisions of the BCA); in the event of a tie, the resolution for which the chairman voted is adopted.

This conclusion, even in relation to decision-making by an absolute majority of all members of a collective body (not just by a majority of members present), was confirmed in the decision-making practice of the Supreme Court, which in its decision of 13 December 2006, file no. 35 Odo 755/2005 on the issue of decision-making by the board of directors of a joint-stock company, which, according to the then regulation, decided by a majority of all members, stated that: "It is also necessary to take into account the circumstance that, in both the board of directors and the supervisory board, the vote of the chairman has decisive significance in the event of a tie, according to the provisions of Section 66 par. 4 of the Commercial Code. "

The given conclusions are also supported by the commentary literature, according to which: "The rules for the decision-making of the board of directors should be determined by the articles of association or the rules of procedure of the board of directors, the law contains a supporting rule that stipulates that the board of directors decides by a majority vote of all its members. Voting in this body no longer depends on the size of the share in the company, but voting is carried out according to the principle of "one head, one vote" and according to Section 66 par. 4, second sentence of the Commercial Code, in the event of a tie, the chairman's vote is decisive.” [4]

Therefore, if the legislator, with the adoption of the BCA, has established the (dispositive) rule of the casting vote of the chairman of the supervisory board, the given rule will also apply to the decision-making of the supervisory board by an absolute majority of all members, when in the case of 4 for and 4 against, the decision of the Company's supervisory board will be (not) adopted depending on the vote of the chairman. The opposite conclusion would ultimately make the institution of the casting vote of the chairman completely obsolete, since it could de facto never be applied. In other words, the casting vote of the chairman would never influence the result of the vote (even in the case of 1-1, 2-2, 3-3, 4-4), which was obviously not the intention of the legislator.

A maiori ad minus, the conclusion that the decision of the supervisory board has been validly adopted can be reached even in a situation where only seven members attend the meeting of the supervisory board, or one member abstains from voting, while four of them, including the chairman of the supervisory board, vote in favor of the decision. In this situation, although an absolute majority of all members of the supervisory board would not be achieved, and at the same time there would not be a tie in the vote in question (when the chairman has the casting vote), ultimately the non-participation of the last member of the supervisory board at its meeting, or his participation and abstention from voting, is identical to a vote against the adoption of the decision. Otherwise, it would be possible to reach the hardly defensible conclusion that a member of the supervisory board cannot reverse the adoption of the decision by voting against it (in a situation of 4-4 ) or, in terms of consequences, by abstaining from voting [5], but can do so by not attending the meeting of the supervisory board at all.

With regard to the basic purpose of Section 44 par. 3 of the BCA, which is to prevent deadlocks that threaten the ability of collective bodies of commercial companies to act, the application of the provision in this case is therefore entirely appropriate. On the contrary, if, in the situation considered (seven participating members, four for and three against), the chairman of the supervisory board voted against the decision in question, or abstained from voting or did not participate in the meeting of the supervisory board at all, the decision would not be adopted. The above can then be applied analogously to the case of a voting ratio of four for, two/one against; if the chairman's vote is among the votes for the adoption of the decision, the decision is adopted, otherwise not.

As described above, with regard to the dispositive nature of the otherwise clear and transparent provisions of the BCA, minor interpretative ambiguities may arise in corporate practice, associated with a specific combination of aspects of the regulation of the decision-making process of the supervisory board (number of members of the body, quorum, casting vote of the chairman and the required majority). In this regard, there is nothing left to do but recommend specifying the founding legal acts and other internal regulations so that they correspond to the specific needs of the company concerned and enable it to benefit from the flexibility of the legal regulation, without simultaneously disrupting the legal certainty of the interested parties.

[1] For example, in the form of a teleconference or videoconference, or representation by another member of the body within the meaning of Section 159 par. 2 of the Civil Code.

[2] ŠTENGLOVÁ, Ivana, DĚDIČ, Jan, LASÁK, Jan, PIHERA, Vlastimil, LÁLA, Daniel, JOSKOVÁ, Lucie. Joint-stock companies. 1st edition. Prague: CH Beck, 2023, p. 573, marg. no. 1953

[3] LASÁK, Jan, Jan DĚDIČ, Jarmila POKORNÁ, Zdeněk ČÁP, Jana SKÁLOVÁ et al. The Business Corporations Act: Commentary [ASPI System]. Wolters Kluwer [cit. 2024-8-16]. ASPI ID KO90 2012CZ. Available in the ASPI System. ISSN: 2336-517X.

[4] POKORNÁ, J. § 194 [Election of members of the board of directors and their legal status]. In: POKORNÁ, J., KOVAŘÍK, Z., ČÁP, Z. et al. [Cancelled] Commercial Code: Commentary . [ASPI System]. Wolters Kluwer [cit. 2024-8-15]. ASPI ID KO513 1991CZ. Available from: www.aspi.cz. ISSN 2336-517X.

[5] by analogy cf. resolution of the Supreme Court of 20 November 2019, file no. 27 Cdo 1951/2018: “(…) if a (simple or higher) majority of votes counted from the votes of the present members (delegates) was required for the adoption of a resolution at a members' meeting (assembly of delegates) of a cooperative, this means that the votes of the (present) members (delegates) that were not cast for the draft resolution will not affect the numerator in the fraction used to calculate (determine) whether the resolution was adopted by the required majority, but will be counted among the votes of the present members (delegates), i.e. they will be reflected in the denominator of the said fraction. From the above, it follows that abstaining from voting (as well as casting an invalid vote or not casting any vote) has similar consequences as voting against the draft resolution.”

Source: epravo.cz