Protecting individual investors' interests in a court dispute concerning a participant being excluded from a company

Case details

A major infrastructure project for the construction of an oil depot on Sakhalin was jeopardised owing to a corporate conflict between the members of a limited liability company (LLC). One of the partners, who owned a 50% share, filed a lawsuit to exclude the three other investors (co-owners of the remaining 50%) from the company. This could have led to all their invested funds and the rights to the project being lost.

Task

To protect the interests of the minority investors (private individuals) in court, to secure the dismissal of the claim for them to be excluded from the company, and to preserve their shares in the promising project.

Complication

The partners initially relied on a trust-based relationship and verbal agreements regarding how to implement the project and manage the business. These terms were not legally formalised, either in a shareholder agreement or in the company's charter. Under such circumstances, it is traditionally difficult to prove that the minority participants' actions are legitimate, with such actions often being construed as "obstructing the company's operations".

Actions taken

The lawyers from Pepeliaev Group conducted a detailed analysis of the history over many years of the partners' relationship and examined the technological and financial aspects of the project. A key element was our systematic review of extensive email correspondence, which made it possible to reconstruct the picture of the initial agreements and the logic behind the decision-making. Based on this, and relying on the position of the Russian Supreme Court in the "Meridian" case, we constructed a strategy for legal defence.

Result

The courts of three levels, including the Russian Supreme Court, dismissed the claim in full. It was established that the conduct of our clients (voting at members’ general meetings on matters concerning the management and financing of the company) was lawful and did not testify to a loss of interest in the business or actions detrimental to the company. The court stated that the true reason for the lawsuit was the claimant's attempt to resolve the corporate conflict in their own favour, rather than to protect the company's interests.

Significance

The case not only enabled the investors to preserve their substantial capital investments but also set an important precedent. It clearly demonstrates to business that there is a critical need for all agreements between partners to be legally formalised at the outset of a joint project. A shareholder agreement or detailed charter of the company is not a mere formality, but a key risk management tool that allows disputes to be resolved within a legal framework, without resorting to destructive attempts to exclude partners from the business.

Team

The interests of the clients (the defendants) in this case were represented by lawyers from the Corporate Practice of Pepeliaev Group: Counsel Evgeny Mushta and Partner Ilya Bolotnov.