Recently, one of the practical problems in the operation of commercial law companies has been the issue of the expiry of the mandate of a member of the board. This issue has been the subject of numerous court verdicts and statements by representatives of the legal science as well. The determination of the end date for the exercise of the function has caused and continues to cause difficulties.

The literature has so far distinguished between two main positions. According to the first, the term of office should be determined according to full financial years. According to the second position, on the other hand, the term of office is calculated in years from the date of appointment, whereby the last year of office of a member of the board of directors must be a full financial year.

The question of the length of the term of office is regulated in two provisions of the Commercial Companies Code in Article 202 (as to a limited liability company) and Article 369 (as to a joint stock company). In the most recent amendment to the Commercial Companies Code, a phrase was introduced to the above articles, according to which the term of office is calculated in full financial years, unless the articles of association provide otherwise. This sentence resolves doubts related to the issue of determining when the mandate of a member of an organ expires due to the expiry of his or her term of office.

According to the example cited in the explanatory memorandum to the amending act, the mandate of a board member appointed on 1 June 2021, for a two-year term, in a company whose financial year is the same as the calendar year, will expire on the date of the shareholders’ meeting approving the financial statements for the financial year 2023.

In practice, a two-year term of office will mean a longer mandate to sit on the board of directors than two years, in the example given above approximately three years. The first (of the two term years) will therefore be 2022 and the second 2023. The ordinary shareholders’ meetings approving the reports are usually held in the second quarter of the year following the end of the financial year, which means that the mandate will probably expire in the second quarter of 2024 (at which time the report for the second term year, i.e. 2023, will be approved), even though the exercise of the mandate under the “two-year term” started on 1 June 2021.

If the convening of the Assembly is postponed (e.g. due to the lack of readiness of the financial statements, shortcomings in the composition of the Board of Directors, differences of opinion within the Board of Directors regarding the content of the report, the audit showing defects in the report, etc.). ‘2-year term of office’ may mean much more than 3 years of mandate – which will not be in accordance with Article 231 (or 395) of the Companies Act and which exposes the board of directors to liability (fine under Article 24.1b of the Act on the National Court Register and possibly under Article 77 of the Accounting Act), but we know of such frequent cases.

This will also mean, interestingly, that some calendar (financial) years will not be member of board term years, even with the timely approval of the financial statements. In the aforementioned example, the current 2-year term of office covers 2022 and 2023, and the next term of office covers 2025 and 2026, since the running of the next term of office will start at the beginning of the following year after the election in 2024 of the next composition of the Board of Directors, i.e. at the beginning of 2025 (this election is necessary because at the 2024 assembly, at which the 2023 report will be approved, the terms of office of the members of the board of directors of the term in question from 2022-2023 appointed on 1 June 2021 will expire, which means that the board of directors will have to be appointed for a new two-year term, otherwise the company will be without a board of directors). The new term of office will therefore start on 1 January 2025, meaning that 2024 will not be a term year. We are not convinced whether this was the intention of the legislator, i.e. whether such an effect (‘termless’ years) was thoroughly thought out, but at this point we see no other interpretation.

Pursuant to Article 23 of the Act of 9 February 2022 amending the Commercial Companies Code and certain other acts, the Commercial Companies Code, as amended by the amending act, shall apply to the mandates and terms of office of members of the bodies of companies that continue on the date of entry into force of the amending act. Which means that we apply the new provisions for the manner of calculating the term of office, even if the person was appointed before the Act entered into force.

The amendments in question, pursuant to Article 37 of the Amendment Act, enter into force six months after the date of promulgation, which was 12 April 2022. Thus, they entered into force on 13 October 2022.