The procedure for resolving corporate disputes. Existing ways to resolve differences.

Jun, 02 2022

Contents:

A corporate dispute is a disagreement between the participants (shareholders) regarding the nuances of doing business. Such conflicts can harm both individual participants and the company. It is for this reason that we do not recommend leaving the disagreement that has arisen on its own. In this article, we will note the areas of corporate law where claims of participants are most common and consider the procedure for resolving corporate disputes.

Participants and subject of corporate disputes

The most common corporate disputes arise in the following categories of relations:

  • disputes that have arisen against the background of a different vision of the management of the company’s affairs.
  • disagreement in matters of liquidation, reorganization of the business.
  • dispute over the order of distribution of shares or shares of the company, which directly affects the amount of profit (dividends) of their holders.
  • disagreements on the distribution of powers of the company’s director – the choice of the director, the granting of greater powers to the board of directors.
  • a dispute over the issue of securities, which may affect the interests of individual shareholders, whose share of participation in the business will become smaller.
  • disputes against the background of a transaction that other founders or interested parties will want to challenge.
  • disagreements on the amount or non–payment of dividends – if the amount of dividends paid is lower than the proportional number of securities of the participants, then the shareholder can enforce his rights.
  • the reason for the beginning of disagreements within the company may be not notifying the interested person about holding a meeting of shareholders (participants) of the enterprise.

The participants in the process are most often:

  • legal entity and sole proprietor.
  • participants, shareholders, founders.
  • investors.
  • government agencies.

Features of corporate disputes and their consideration

The regulatory legal acts of the Russian Federation prescribe to consider the corporate disagreements that have arisen in the arbitration court. At the same time, the procedure does not imply the direction of a pre-trial claim, allowing the subject to file a claim immediately.

However, the following fact must be considered. When protesting the results of the general meeting, making claims for damages, declaring the transaction invalid, the plaintiff will be obliged to send a written notification of his intentions to all interested parties. Participants also need to provide the available information about the case. Such notification shall be sent no later than five days before the filing of the claim and sent to the legal address of the company. Further, the company independently communicates information to its participants.

Among other features, you can also highlight:

  • The corporate dispute is internal. This means that disagreements arise exclusively among persons related to the same company. From a legal point of view, it is more difficult to settle such a dispute, since the parties may not want to make concessions to each other.
  • Such disagreements are often stretched over time. This means that it may take months or several years for lawyers to find a compromise.
  • Almost always, the procedure for considering corporate disputes involves going to court. This trend is due to the desire of both sides to defend their position, which can only be done in court after careful consideration of all documents and evidence.
  • When considering corporate disputes, it is important to collect and provide the court with the maximum set of documents. Practice shows that in the event of financial disagreements, testimony and arguments play a secondary role. It is much more important to study the charter, minutes of meetings, orders of the head and other orders. Only after reviewing official papers does the court, as a rule, resort to the method of questioning witnesses.

Causes of corporate disputes

In legal practice, there are subjective and objective reasons for the existence of internal disagreements. As a rule, the latter are associated with the imperfection of legislation, when serious sanctions cannot be applied for non-fulfillment of obligations. At the same time , subjective disputes include:

  • The desire to protect themselves from bankruptcy or evade taxes often pushes the management to formalize the company on figureheads. This is fraught with the actual seizure of the enterprise by this person, which can lead to internal conflict.
  • Equal allocation of shares in the business. Often, two partners formalize a company in a 50-50 ratio. If there are different positions on how to manage a business, there may be a conflict of interests that can only be resolved in court. To anticipate this situation in advance, one of the parties may propose to abandon the actual conduct of business within the framework of a corporate contract. In this case, the founder will still receive a monetary reward.
  • Excessive trust in the manager, which is fraught with a lack of control and the commission of illegal or harmful actions on his part. If such a scenario develops, a corporate dispute is inevitable. You can get away from such a disagreement by monitoring the activities of the manager and the transactions being made.
  • Removal of a participant from the ranks of the founder or head of a legal entity for making obviously unprofitable transactions. In this case, the excluded party, or other participants with a share of ownership of at least 10% can apply to the court.
  • Transfer of a share to a third party when the company is sold.

Procedure for consideration of corporate disputes

Disagreements within the company are considered by the arbitration court. After the start of the process, the judge suggests that the parties conclude a settlement agreement, as this optimizes the costs of the parties and the time costs of the court. The process of concluding a settlement agreement includes negotiations, including with the involvement of a third-party mediator. It will contribute to the development of a mutually beneficial mechanism for overcoming the current situation. In case of successful completion of negotiations, the parties conclude a settlement agreement, which considers the interests of both parties.

If the parties have not achieved success in the framework of negotiations, the court appoints the date of the court session, where the claim of the participant will be considered on the merits. During the process, it is necessary to provide indisputable evidence of violation of corporate rights, to petition for the summoning of witnesses who will confirm your correctness. If necessary, you need to conduct an examination, for example, a handwriting examination – a study of a document that was signed by a third party on your behalf.

Ways to resolve corporate disputes

As a rule, the arbitration court satisfies the plaintiff’s claims or takes the side of the defendant if a decision on the claim is impossible for several reasons. Also, a court or other state bodies may apply several interim measures. In matters of resolving corporate disputes, the most used:

  • seizure of shares, shares in the authorized capital and other assets.
  • the imposition of a ban on transactions with shares, shares in the authorized capital with other assets.
  • prohibition on making decisions regarding the subject matter of the dispute.
  • prohibition on the execution of decisions of a legal entity.
  • prohibition on making records on the accounting of shares, transfer of rights to securities, their placement and circulation.

At the same time, the court does not have the right to prohibit general meetings of shareholders, compile their lists, send out voting ballots and summarize the issues on the agenda.

VALEN’s lawyers have extensive experience in protecting the corporate interests of business participants (shareholders) and are ready to provide legal assistance both at the negotiation stage and during the trial.

Author of the article
The procedure for resolving corporate disputes. Existing ways to resolve differences.
Valentina Khlavich
Managing Partner
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