Corporate dispute on invalidation of deals

Feb, 20 2020

From 2018 to the present, VALEN has been representing the interests of an American company, which is at the same time the founder and the only participant of the Russian Limited Liability Company (hereinafter – the Company, Plaintiff). During the period from 2016 to 2019, the functions of the Plaintiff’s Director General were performed by a U.S. citizen, who also created a new legal entity (hereinafter referred to as Defendant) in 2018, where he is the only participant and Director General.

During the exercise of his powers, the former Director General concluded number of agreements on terms which were obviously disadvantageous for the Company. Among these agreements there are sales contracts of vehicles, mediation contracts, loan contracts. Moreover, these contracts were concluded with his own company, which confirmed his dishonesty in the exercise of his functions. Such actions of the former Director General caused a corporate conflict and became the basis for a decision of changing Director General and his removal from office as well as filing number of lawsuits to the court.

Thus, the Company filed the following claims within this case:

• On invalidation of sales contracts of vehicles in the total amount of 9 million rubles – the claim requirements are fully satisfied by the court;

• On the collection of documents and material assets of the Company – in the course of proceedings, the former Director General returned illegally held documents and material assets of the Company to the Plaintiff;

• On invalidation of contracts and the application of the consequences of contract invalidation – the claim requirements are partially satisfied by the court, most of the amount claimed will be recovered from Defendant.

• On the protection of the exclusive right to a trademark – Defendant’s company was registered under an almost identical name with the name of the Plaintiff, which served as the basis for filing such a lawsuit. Prior to the beginning of the substantive consideration of the case, Defendant fulfilled Plaintiff’s requirements and changed it’s name. In turn, the former Director General also filed two lawsuits against the Company:

• On the recovery of unpaid wages in the amount of 3 million rubles — by the decision of the district court the claim requirements were dismissed in full, and the Court of appeal upheld this decision;

• On the recovery of compensation for termination of an employment contract in excess of 12 million rubles – the claim requirements were dismissed in full by a decision of a district court. Dispute on invalidation of contracts

The most significant case of this corporate conflict was a lawsuit on invalidation of number of agreements concluded by the former General Director between the Company and the Defendant, and the application of the consequences of transactions’ invalidity.

During the consideration of the case, VALEN’s lawyers proved the facts of dishonest behavior of Defendant and its Director General, which caused significant damage to the Company.

Rendering a judgment, the court agreed with the Plaintiff’s arguments about the abuse of the right by the Company’s former Director in violation of Article 10 of the Civil Code of the Russian Federation, on his unfair behavior and the unreasonableness of the disputed transactions on such disadvantageous terms for the Plaintiff. The court, having partially satisfied the Plaintiff’s claim requirements, declared the mediation agreements between Plaintiff and Defendant invalid and applied the consequences of the invalidity of the transactions, recovering 124.9 million rubles from Defendant in favor of Plaintiff.

Dispute on reclaiming of cars

One more lawsuit, considered by the Arbitration Court of Moscow, was the dispute on the invalidation of sale contracts Company’s vehicles. Prior to the change of the Plaintiff’s director general, during the period of his duties, the former company’s director general had concluded three sale contracts of cars between the Plaintiff and the Defendant in the total amount of 9 million rubles. These agreements were completed shortly before the change of director and were signed by one person on both sides.

The court, having agreed with the arguments of Plaintiff’s representatives about the lack of economic viability of concluding transactions on conditions known to be disadvantageous for the Company, ruled to recognize the sales contracts invalid, to apply the consequences of transactions’ invalidity and to return all three disputed vehicles to Plaintiff.

So, the client’s interests were successfully represented by VALEN team in court instances, Company’s withhold property was returned and claim requirements on client’s funds recovery from Defendant amounting to over 120 million rubles were satisfied by the court.

Author of the article
Corporate dispute on invalidation of deals
Valentina Khlavich
Managing Partner
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