Only the owner of the company can submit a request for deletion from the directors’ register

According to the amendments to the Companies Act from 2003, any member of the management board can resign at any time, with the decision taking effect 14 days after the resignation is submitted. This is merely noted in the register, but deletion from the register is somewhat more complex.

Written by: Prof. Dr. Hrvoje Kačer

The owner of the company where M. J. was one of the middle managers, pressed by poor collections and business problems, established several new companies to which he transferred part of the business, essentially the payment transactions. M.J. was then formally promoted to the director of one of those companies, as he had neither signing authority nor decision-making power. Shortly thereafter, he found new employment and left the old company believing he had been relieved of all duties. However, several years later, a summons arrived from the Commercial Court, where, along with the owner, he was still called a registered director at the Commercial Court, summoned to attend a hearing regarding a lawsuit for unpaid debts from one of the clients of the former company. And here begins the painful journey of proving that he is no longer a director and that he cannot provide the requested information to the court and that he is not responsible for anything. But then he realizes that it is not easy to be deleted from the Commercial Court register. Although he has not worked in that company for years, has a written resignation with the owner’s signature, and proof of employment in the new company, the Commercial Court will not delete him from the register without a written request from the owner. Therefore, it is easier to become a director than to cease holding that position, and if you have offended the owner in the process, he can, out of pure revenge, ‘leave’ you in the court register, and you will continue to receive lawsuits from angry, deceived, or unpaid clients. Why is the law structured this way and what can be done?

How to avoid voluntarism

Since the time of Croatia’s independence, the entrepreneurial spirit has ‘come out of the bottle’; at that time, everyone began to present their ideas and ambitions without fear of state reprisals, even with hope for state incentives. In those beginnings, there were frequent misunderstandings, business partnerships without real backing, and, of course, the associated business disasters. Most often, as today, limited liability companies were established. Both limited liability companies and joint-stock companies are liable for their obligations with all their existing and future assets, but members of the company are not liable for the company’s obligations, except in exceptionally rare situations (the so-called piercing of the corporate veil is most often mentioned). From the beginnings to today, legal regulations have been built, but anyone analyzing the Companies Act must be aware that provisions originally relating to joint-stock companies apply subsidiarily (meaning subordinately, if there are no provisions in the part that directly relates to limited liability companies) to limited liability companies, which are regulated far more precisely with almost three times as many provisions. The Companies Act uses the term appropriately to protect the so-called nature of things and to prevent harm from the violent application of provisions that apply to joint-stock companies. Of course, judicial practice has the task of establishing the right criteria that will exclude any voluntarism and arbitrariness. Therefore, there are two possible most common crisis situations that are interconnected when it comes to the cessation of work of directors or members of the management board. The first is when two or more persons join together and establish a commercial company with equal shares (most often there are two founders with equal business shares). The second is when someone is appointed as a person authorized to represent a commercial company and after a certain time no longer wishes to be so, which also happened to M. J.

Establishing the conditions for separation in advance

In the first situation, the cause of the crisis can be intentional or unintentional. For example, members who are also authorized representatives may have completely different opinions with very strong arguments for the same problem, making it sometimes difficult to determine who is ‘stronger’. In such situations, partners cannot continue together, and the key question is: Have they precisely and qualitatively elaborated the ‘divorce’ in the social contract, which was concluded during idyllic relations, given that they have equal shares? Precision and quality practically mean two things. The first is to determine the method of separation, which can be, for example, exposing shares in the company to potential acquirers, with or without restrictions for third parties. Thus, it is possible to ‘roll the dice’ to determine who is the first offeror, that rejecting the offer also means making one’s own offer, which must be at least 10 percent higher than the rejected one, etc. The second is to determine the sanction for behavior different from what was agreed – since this is not a monetary obligation, the right solution is a contractual penalty, preferably with as many security measures as possible, from personal promissory notes onwards.
Thus regulated separation creates, without a doubt, minimal problems. Unfortunately, the Companies Act does not have specific provisions that would resolve such a situation, and it is not entirely clear that the provisions on the dissolution of co-ownership, which is contained in another regulation – the Property Act and other real rights, could be appropriately applied. It would certainly be useful to explicitly regulate such cases in the Companies Act, with one of the options being a reference to the Property Act, with or without corrections. In this regard, it is very important to have an effective solution, and the application of the institute of loyalty to the company contained in the Companies Act often is not, or is, only if it is completely clear that some member is acting to the detriment of the company, and even then, a painstaking litigation process must be conducted to reach a solution. Litigation is the ultimate solution we propose, but with the security measures and rules we have mentioned as a desirable part of the social contract. This litigation is free from usual risks (but also superfluous in the sense that they can be avoided through quality prevention).

The decision of the registration court is a declaration

Until the amendment of the Companies Act in 2003, the resignation of a management board member was without special regulation. Because of this, almost incredible, but also tragicomic situations occurred that are difficult to understand for those who have not found themselves in them – you want to sever all ties with a company and cannot achieve a decision from the registration court regarding deletion from the court register. But now the situation is much better. According to Article 424 of the Companies Act, any member of the management board can resign at any time, regardless of how they previously renounced or limited that right. The decision of the registration court is a declaration; it merely states what has occurred without it, and the decision of the person resigning, provided there is a valid reason for it, takes effect from the moment it is submitted to the company, and if there is no valid reason, after 14 days from submission. However, not everything is as idyllic as it seems. The resignation must be submitted in writing, and there is no objection to this. However, it must be given to the company’s assembly if the company does not have a supervisory board (which is often the case) and must be announced in the agenda of the assembly, which can be obstructed to the detriment of the resigning party, which also applies to the registration of the change (in this case, the resignation) in the court register. Therefore, regardless of not being deleted from the court register, the Commercial Court, in the event of litigation against the company of the former director, will consider the release, i.e., the written resignation. However, the request for deletion from the register must be submitted by the owner, or the authorized person in the company. The director who resigns cannot do this himself precisely because he is no longer an authorized person.