In its recent decision, Case No. 27 Cdo 2390/2025, the Supreme Court addressed a question that frequently arises in practice: what effect does a breach of an agreement governing the exercise of voting rights in a shareholders' agreement have on the validity of a shareholders' resolution?

Last year, the High Court in Prague's decision, Case No. 7 Cmo 23/2025, attracted considerable attention. In that case, the Court accepted that a breach of obligations contained in a shareholders' agreement could amount to conduct contrary to the principles of good morals (boni mores) and, in exceptional circumstances, could even result in the invalidity of a resolution adopted by the general meeting. However, this would only apply where the person exercising the voting rights was personally bound by the shareholders' agreement.

In the case considered by the Supreme Court, the shareholders had orally agreed that the company's profits would be distributed according to the economic performance of the individual business units for which each shareholder was responsible. Although the company's articles of association provided that profits were to be distributed solely in proportion to each shareholder's shareholding, the parties followed their oral agreement during the first two years. In the third year, however, they distributed the profits strictly in accordance with the shareholdings. The disadvantaged shareholder challenged the validity of the profit distribution resolution, arguing that it breached the parties' agreement. The Supreme Court rejected that argument.

In its latest decision, the Supreme Court reaffirmed the traditional approach and emphasised that:

➡️ the primary consequence of a breach of a contractual obligation is liability for any resulting loss, rather than the automatic invalidity of the act by which the obligation was breached;

➡️ where the provisions of the articles of association conflict with those of a shareholders' agreement, the articles of association will generally take precedence when assessing the validity of a shareholders' resolution;

➡️ a failure to comply with a shareholders' agreement, regardless of its significance or legal force, will generally not constitute grounds for declaring a shareholders' resolution invalid.

What is the practical takeaway?

When negotiating shareholders' agreements, it is essential to include a clear and effective enforcement mechanism, together with appropriate contractual remedies for any breach. Although the Supreme Court has left open the possibility that, in exceptional cases and depending on the specific circumstances, a different conclusion may be justified, parties should not assume that the invalidity of a shareholders' resolution will be available as an alternative remedy for a breach of a shareholders' agreement.

Author: Filip Rebeka