The legal effect of restrictions on managers’ power of representation in relation to third parties?
For the sake of convenience, we shall refer here to all the statutory representatives of the companies as “manager”. The restrictions on the manager’s power of representation and conduct of business are most often regulated in such a way that the manager may represent a company only together with another manager or has to obtain consent of the supervisory board or company owners prior to the transaction.
Furthermore, there is also a distinction between the restrictions depending on whether they are entered in the court register or whether they are only laid down, for example, in the company’s internal acts or the contract between the company and the manager.
The only effective restriction on the power of representation that produces effects toward third parties is to determine a joint representation of the managers, and this restriction must be entered in the court register.
All other restrictions on the power of representation (for example, restriction on the power of representation of the director for entering into specific legal transactions) do not have effects toward third parties even if they are entered in the court register (as explained by the Supreme Court of the Republic of Slovenia in the judgment ref. no. III Ips 87/2011). Such legal transaction is therefore deemed valid regardless of whether the third party knew of the restriction on the powers of the manager or not.
The situation may be different in the case of conduct of legal persons that are not corporations. In the case of institutes, for example, it is possible, pursuant to Institutes Act, to enter in the court register other restrictions on the power of representation (for example, that the director of the institute may not enter into specific legal transactions), and such restriction will also produce effects towards third parties. This was also recently confirmed by the Supreme Court of the Republic of Slovenia in the judgment ref. no. III Ips 78/2016.
Furthermore, even if a specific restriction on the powers of representation of the manager in relation to third parties will have no effects, this does not mean that such restriction will not produce internal effects between the company and the manager. The manager who exceeded his or her powers will still be liable to the company for the damage caused, and the company will still be able to take appropriate action against such manager.
