Challenging meeting resolutions and company transactions

What is happening

A participant learns from the state register that the company has a new director or has increased its charter capital, although he never received notice of any meeting. After the capital increase his stake is diluted, and his influence over decisions with it.

The director sold the company's production site to an affiliated firm at well below market value without putting the deal to the participants for approval. The other owners found out when the new owner started invoicing the company for rent.

The reverse also happens: the company has passed a resolution or entered into a major transaction, and a minority participant has sued to have it declared invalid. The decision needs defending without halting the project it was taken for.

What the law says

• The grounds for invalidating meeting resolutions are set by the Civil Code: a resolution may be voidable, for example where the procedure for convening the meeting was materially breached, or void, where it was passed without a quorum or on a matter not on the agenda.
• The adoption of a resolution by an LLC general meeting and the participants present are certified by a notary unless the charter or a unanimous decision of the participants provides another method. Failure to meet this requirement is often a ground for dispute in itself.
• Approval of major and interested-party transactions is governed by Federal Law No. 14-FZ of 8 February 1998 "On Limited Liability Companies" (the LLC Law) and Federal Law No. 208-FZ of 26 December 1995 "On Joint-Stock Companies" (the JSC Law); a transaction entered into in breach of that procedure can be challenged in court.
• Separately, the Civil Code allows a challenge to a transaction concluded by the director to the company's detriment where the counterparty knew or should have known of the obvious harm or of collusion.
• Time limits are short. For LLC and JSC meeting resolutions they are set by special provisions of the LLC Law and the JSC Law and run in months; for voidable transactions the Civil Code limitation period is one year.
• The court may uphold a resolution if the claimant's vote could not have affected the outcome and the resolution has not caused him significant adverse consequences. That is why it matters to show from the outset exactly how the decision affects the client's interests.

What we do

• We check the procedure: notices of the meeting, the agenda, the quorum, the vote count, notarial certification and consistency with the charter.
• We establish which time limit applies and when it started running, and where time is short we file the claim first.
• We analyse the transaction: whether it is major or involves an interested party, whether the price is at market, and how the counterparty is linked to the director or the majority owner.
• We prepare the claim and an application for interim measures so that the asset cannot be resold or encumbered before judgment.
• We defend clients' resolutions and transactions against challenge, gathering evidence that the procedure was followed and no harm was done and, where needed, arranging subsequent approval.
• We represent the client at every level of the commercial courts and see the judgment through: restoring register entries and recovering property.

What we will need from you

• The resolution under challenge or what you know about it: the minutes, a register extract, the notice if there was one.
• The charter as it stood on the date of the meeting or transaction.
• When and how you learned of the resolution or transaction, since this determines when time started running.
• The transaction documents or what is known about them: the subject, the price, the parties and the buyer's links with the director.
• The company's accounts for the last reporting date before the transaction, to assess whether it was major.