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It is not unusual that in an effort to avoid fraudulent conduct, abuse of power, errors in decision-making processes, but also for the purpose of increasing overall transparency and responsibility, partners and shareholders in founding documents or statutes resort to regulating the so-called rule of four (or more) eyes.
The essence of this rule lies in the fact that decision-making or the execution of important business operations is controlled by at least two independent persons. The requirement for joint action of several members of the statutory body enshrined in the founding document is reflected in relation to third parties in the entry of this fact in the Commercial Register, e.g.: “All executives act and sign on behalf of the company jointly, in such a way that they attach their signatures to the business name of the company.”
Although the four-eyes principle is not explicitly enshrined in the Slovak legal order, this fact has been largely helped to bridge by some legal conclusions of the highest judicial authorities. Despite (or perhaps because of) the fact that the said rule is not directly part of our legal order, one can repeatedly encounter efforts to circumvent it in business practice. Through the case law of judicial authorities, we offer you answers to basic questions related to the application of the four-eyes principle in business relations.
Is it possible to circumvent the four-eyes principle through a general power of attorney granted by one member of the statutory body to another member?
We have long held the opinion that this is not possible. Not only would such a procedure be in conflict with the legal regulation of the acting of the statutory body contained in the Commercial Code and in conflict with the founding document of the company, but moreover, the stated would quite obviously miss the purpose of enshrining the joint acting of several members of the statutory body.
The Constitutional Court of the Slovak Republic, following up on its previous decision-making activity, in the finding dated September 27, 2022, file ref.: IV. ÚS 295/2022 stated: “The joint acting of all executives established by the deed of foundation of a business company is a manifestation of the sovereign and free will of the partner of the business company so that the executives, in legal acts by which they bind the company, act as expressed by the partner in the deed of foundation. If, in the case of joint acting of all executives enshrined in the deed of foundation, one executive authorizes another executive to represent him in all acts associated with the function of an executive, this state negates (circumvents) the will of the partner expressed in the deed of foundation, and thereby also circumvents the law, which entrusts precisely the partner with determining the method of acting of executives on behalf of the company.”
And what if, instead of a member of the statutory body, the company (acting through a collective statutory body) granted a general power of attorney exclusively to one of the members of the statutory body?
We believe that even such a power of attorney would not be admissible and would not reflect the initial will of the partners or shareholders that at least two members of the statutory body always act on behalf of the company.
If, therefore, a general power of attorney granted by one member to another member of the statutory body is out of the question, can one consider a power of attorney granted exclusively for the execution of a specific act?
In business practice, one can also encounter a situation where one member of the statutory body authorizes another member of the statutory body to perform a specific act, e.g., to conclude a contract. Such authorization is justified, for example, if one member of the statutory body is abroad at the time of the conclusion of the contract, or there is another reason why he cannot participate in the given act. The answer to this question is offered mainly by the Supreme Court of the Slovak Republic, in the resolution dated December 14, 2021, file ref.: 4Obdo/114/2020 or also the Supreme Court of the Czech Republic in the judgment dated January 25, 2011, file ref.: 32 Cdo 4133/2009. Both judicial authorities agree in the conclusion that although granting a general power of attorney to another member of the statutory body is not admissible, it does not exclude the possibility for a member of the statutory body to grant a special power of attorney for a specific legal act to another member of the statutory body, due to temporary obstacles on his side. Likewise, the Constitutional Court of the Slovak Republic in the finding dated November 26, 2019, file ref. I. ÚS 191/2019 admitted that it is possible to grant a power of attorney to only one of the members of the statutory body of the company, provided that it would authorize him to act in cases where the will of the company has already been expressed in the form of adopting a decision on the realization of a certain legal act and the specific statutory member is only in charge of the formal execution of this legal act.
Can a member of the statutory body authorize a third party who is not a member of the statutory body to perform his function?
Expressed legal opinions of the Supreme Court of the Slovak Republic (5 Obdo 38/2018, 5 Obo 93/2009) indicate that such authorization is admissible. However, we identify rather with the legal opinion contained, for example, in the Judgment of the Regional Court in Trnava dated December 12, 2018, file ref.: 25CoPR/10/2017: “If the statutes of the company determine that at least two members of the board of directors must act jointly on behalf of the company, it is not admissible for two members of the board of directors to grant a general power of attorney to only one of them. If it is therefore inadmissible for a collective statutory body, having to act jointly in the sense of the memorandum of association, to authorize only one of its members for such acting, it is all the more inadmissible for a collective statutory body to authorize a single third party, who is not even a member of the statutory body, to exercise its general acting authorization.
As stated by the Constitutional Court of the Slovak Republic in resolution III. ÚS 353/2012-17 dated August 1, 2012, in the event that executives were entitled to grant a general power of attorney for the exercise of their executive authorization to third parties, collisions and conflicts could occur if they performed certain legal acts both as executives and simultaneously as their attorney. The construction of a legal entity excludes its collective statutory body from granting the entire scope of its executive authority to a single third party by itself via a general power of attorney.”
The legal consequence of granting a general power of attorney to a member of the statutory body by another member of the statutory body (or by the company) is its absolute invalidity. An absolutely invalid legal act cannot even be additionally validated. On the other hand, the possibility of using an individual power of attorney is admitted, through which another member of the statutory body is authorized to perform a specifically specified legal act. Following this, the authorized member of the statutory body is not entitled to perform any legal acts, but only those determined in advance. In this way, the substitutability of members of the collective body, the proper functioning of the company, and last but not least, the protection of its interests are ensured.
Have you encountered the above? How did you react to various “powers of attorney” that tried to circumvent the so-called four-eyes principle? Do you want to learn more? Do not hesitate to contact us.
