Training “Responsibility of managers and other persons controlling a business association» (25.09.2018)

Greeting the members of the training, Doctor of Law, Professor of the Department of Civil Law №1 pf the Yaroslav Mudryi National Law University, Inna Spasibo-Fatyeyeva highlighted that the most current issue in the corporate law was the corporate liability of the officials of business associations and their participants. That is why the detailed analysis of the controversial  questions and the experience of the speakers in the judicial, lawyer’s and notarial practice would be helpful both for scientists and for legal practitioners.

Professor Inna Spasibo-Fatyeyeva dedicated her speech to the topic “Liability of the officials of JSC and LLC and their participants (stockholdres) for the offence and the legal consequences of law abuse”

Summary. The feature of the corporate relationships is that the negative behaviour of its participants could be revealed not only in the form of offences, but in law abuse. The consequence of the offence is liability. However, the current legislation does not have certainty regarding who is the liable entity (whether company or its official directly or the member of company), what kind of liability is (labour or civil one) and who can be an initiator of bringing to justice (the company itself or its member).

The problem of the consequences of law abuse by the participants of corporate relations is resolved even more ambiguously. It is not clear from the rules of the legislation in force that a person, who abuses law, is liable for this. Alongside, any other means of defence, using for cessation abusing of law, don’t take effect in the law-enforcement  activity.

A judge of the Supreme Court, Phd, associate professor Vasyl Krat examined the issues of liability for violation of the preemptive rights of shareholders (participants).

Summary. The legislation in force provides for the members of business enterprises can be entitled with preemptive right. For instance, this is the preemptive right to purchase
shares in the authorized capital of LLC, the preepmtive right to purchase shares in Private Joint-Stock Company etc. In case of violation of these rights a person, whose preemptive rights are violated, can take legal action with the requirement to transfer to them a share (shares) that has been sold to another person. At the same time, such a suit is brought against a person who has acquired the relevant share (shares), but not against a person who has violated the preemtive right of the plaintiff. Nevertheless, the issue of the offender’s liability of the preemptive rights has not resolved yet in the legislation, and it is being resolved differently in the judicial practice. In the speaker’s opinion, in this case   paying damages of a person who has violated the preemptive right can serve as  the most effective means of the law defence.

Moreover, in order to prove the amount of damages in this case, it is appropriate to apply the Anglo-American “doctrine of the lost chance.”

The report of the lawyer Roman Sadodash, Ph.D., associate professor of the Department of Civil Law of Taras Shevchenko National University, Kyiv, was devoted to the topic “The Use of Modern Information and Telecommunication Systems while Convening and Holding of General Meetings of the Participants of the LLC and the Responsibility for Interfering with their work”.

Presentation Summary. The Law of Ukraine “On Limited Liability Companies”, which came into force in June 2018, provided an opportunity to determine the ways and procedure for convening general meetings of LLC and ALC in the statutes of the respective types of economic partnerships. In this case, the law does not exclude the possibility of convening and holding general meetings using the most advanced communication tools, such as different messengers, mobile applications, e-mail, etc. However, there are some doubts about the reliability of these means of communication in terms of authenticity of the identification of participants in general meetings, the delivery of electronic messages at the required address and other technical nuances.

Factually, the majority of the most commonly used modern communication tools do not meet the standards of reliability of identification and transferring of information, which are established by the Law of Ukraine “On electronic trust services” (came into force in November 2018). In legal practice, the use of these means can lead to massive abuses and violations which, in turn, will lead to appropriate litigation. The speaker provided practical recommendations on how to set forth in the charter of LLC and ALC the provisions of general meeting convening and holding, as well as a review of possible means of proof in case of the occurrence of relevant disputes.

Volodymyr Igonin, partner of the Law Firm VasilKisil& Partners told the participants about the training on fiduciary duty and responsibility of managers in groups of companies.

Presentation Summary. One of the main responsibilities of business community leaders is the duty to act reasonably, in good faith and in the interests of the partnership, and not in their own interests (so-called fiduciary duty). However, how should the head of the subsidiary company, 100% of shares of which (share capital) belong to another company (parent), whose management completely directs and controls the actions of the head of the subsidiary company act?

In this case, there is a conflict between the interests of the group of companies as such, and the interests of the subsidiary company as one of the companies in the group. The problem is resolved in modern court practice rather ambiguously. However, in this case, the decisions of the European Court of Justice can be taken as a model, in which the court concluded that the activities of the head of a subsidiary company must nevertheless prevail over the interests of the subsidiary company itself, rather than the group of companies.

Natalia Filatova, associate professor, assistant lecturer of the Civil Law Department No. 1 of the Yaroslav Mudryi National Law University, a lawyer, focused on the urgent issues of the responsibilities of the heads of joint stock companies that arise during the takeover and the consequences of their violation.

Presentation Summary. During 2017, a number of changes were introduced to the Law of Ukraine “On Joint Stock Companies”, which radically changed the regulation of the procedure for acquiring a significant (controlling) shareholding in stock companies (the so-called “takeover” procedure).

The abovementioned changes, in accordance with the comments of the subject of the legislative initiative, were aimed at the implementation of the provisions of Directive 2004/25 / EC of the European Parliament and of the Council. However, the implementation was not sufficiently consistent, especially in matters relating to the definition of the responsibilities of executives of a joint stock company whose shares are acquired through takeover, and the consequences of their violation. In particular, the Law of Ukraine “On Joint Stock Companies” does not in fact prohibit members of the supervisory board and the executive body of the target company to take actions aimed at deterring potential investors (for example, selling company’s property to related parties, complicating the procedure for removing members of the executive body from office, etc.). The absence of a duty to abstain from these actions may lead to the violation of the rights of shareholders who acquire a significant (controlling) stake in JSC, as well as to cause damage to them. At the same time, the current legislation does not introduce effective mechanisms for the restoration of violated rights and for bringing the perpetrators to justice.