Majority vs minority shareholders. Engaging insiders. Case study, case №А48-71802015

7 august 2018

Key matter in dispute: Law on joint-stock companies allows owners of 95% shares, at least 10% of which were bought, requesting mandatory purchase of the remaining shares from minority shareholders. Is the same possible when majority shareholder buys shares from its affiliates?

BACKGROUND

Uralskiy Diesel-Motorny Zavod (UDMZ) bought 99.7% shares in Lyudinovskiy Teplovozostroitelniy Zavod from the former's affiliate – Sinara-Transportniye Mashiny, and then filed a request on acquisition of the remaining shares to Central Bank for approval. The regulator rejected in the light of the link between UDMZ and the seller. UDMZ appealed in court.

RULINGS BY COURTS OF THREE LEVELS

The courts upheld the position pronounced by the majority shareholder and held CB’s decision invalid. The Law does not contain any restrictions a to the seller of shares – be it an affiliate or an independent person.

RULING BY SUPREME COURT

The Court ruled that Central Bank was right. Buying shares from an affiliate actually meant moving them from one pocket to the other. In such circumstances, mandatory acquisition of shares from minority shareholders was impossible as it would breach the latter’s rights.

COMMENT BY S&K VERTICAL

The law does not contain a direct rule to govern the question at issue: whether mandatory acquisition procedure (Article 84.8 of the law on joint-stock companies) applies where shares are bought from an affiliate. The law being silent doesn’t mean that acquisition is lawful – Supreme Court says. Systematic interpretation of the law leads to a conclusion that mandatory acquisition in the given situation would have been in breach of the legal nature of the procedure primarily aimed at protection of minority shareholders.

 

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