There have been significant changes in the case law on dispute resolution in a number of categories of legal cases during the operation period of the newly created Supreme Court. Corporate disputes that are within the jurisdiction of commercial courts are no exception.
Changing traditional approaches to resolution of corporate disputes, the court creates new legal opinions, deviating without many qualms from the conclusions on the application of rules of law in similar legal relations, if it considers it to be correct, taking into account the circumstances of a particular case. One of the main ideas that can be traced in most decisions of the Supreme Court lies in the fact that the court decision cannot be declarative, and its adoption must result in a real restoration of violated rights of the party.
Good examples of the Supreme Court appropriate approach are decisions taken precisely on the basis of actual mandatory dispute resolution and effective protection of the violated right.
1) The Squeeze-out procedure is an exclusive right of the majority shareholder and cannot be blocked as a result of measures taken to secure a claim filed by the minority shareholder against a joint-stock company (issuer)
This conclusion was made by the Supreme Court in its judgement as of 20.06.2018 in case No. 914/228/18 . In this case, the court of the first instance satisfied the application of the minority shareholder on taking measures to secure the claim before its filing. However, such measures actually blocked the Squeeze-out procedure (obligatory sale of shares by shareholders at the request of a party holding the controlling block of shares), which is defined in Article 652 of the Law of Ukraine On Joint Stock Companies. Cancelling the ruling, which took measures to secure the claim, the Supreme Court noted that the squeeze-out procedure was the exclusive right of the majority shareholder, therefore the court cannot block the possibility of exercising the corresponding right.
2) when resolving corporate disputes with the participation of private companies, the court applies an analogy of law taking into account the specific circumstances of the case, including the provisions of the charter of a particular private company
The Supreme Court expressed the relevant opinion in its judgement as of 06.03.2018 in case No. 907/167/17, which claimed to declare decisions taken by the general meeting of the private company as invalid.
Since the activity of the private company is regulated only by Article 113 of the Commercial Code of Ukraine, there is virtually no legal regulation of the procedure for incorporation and operation of the private company’s management bodies that are authorized by the owner. Consequently, the Supreme Court applied the analogy of the law to legal disputes, namely the legal norms of the law governing similar civil relations.
Taking into account that the private company is incorporated on the basis of private property of two parties (founders) and its charter capital is divided between the members into shares (similar to the limited liability companies), the Supreme Court arrived at the conclusion to apply the rules of the Law of Ukraine On Business Associations that regulate the procedure for convening and holding general meetings of limited liability companies
3) if a civil-law agreement concerns the acquisition of corporate rights by a party and the right of ownership to a share is transferred at the moment of its signing, the relevant dispute is corporate (jurisdiction of commercial courts)
Taking into account all the circumstances of the case, this opinion was expressed by the Grand Chamber of the Supreme Court in its judgement as of 05.12.2018 in case No. 203/2501/15-ц.
The essence of the dispute in this case was that the Claimant under the purchase agreement acquired the right of ownership to a share in the authorized capital of LLC. The transfer of the corresponding right to her occurs at the moment of signing the agreement. However, before making amendments to the Unified Register of Legal Entities, Individual Entrepreneurs and Public Organizations, the respective share was re-alienated by the seller’s representative in favour of another party. The general meeting of members of the company was held, the relevant amendments to the charter and the Register were made.
The Claimant appealed to the court and filed a claim for: the recognition of her right of ownership to the contestable share in the authorized capital of LLC; the cancellation of decisions made by the general meeting of members of LLC; the invalidation of amendments made to the charter of LLC; the cancellation of the state registration of amendments made to the constituent documents of LLC. Considering that the relevant dispute should be dealt with in civil proceedings, the Claimant appealed to the local court of general jurisdiction.
However, the Supreme Court arrived to the opposite conclusion and upheld in this case the judgement of the court of appeal, which closed the proceedings. The opinion of the Supreme Court is that the share purchase agreement concerned the acquisition of corporate rights, therefore, this dispute is corporate and is subject to consideration according to the rules of commercial legal proceedings. Herewith, based on the content of the judgement, the decisive role for the relevant conclusion was played by the fact that parties to the agreement determined the moment of acquisition of the right of ownership to the share to be the moment of signing the agreement.
The analysis of both above and other legal opinions of the newly created Supreme Court in corporate disputes allows us to positively evaluate the new approaches of the court and to speak about their correctness, especially since they are in line with the declared objectives and the basics of commercial legal proceedings.
Yuliia Stusova, Senior Associate, dispute resolution, exclusively for “Jurliga”