Business Protection Against Hostile Corporate Takeover

Protection of Business Against a Hostile Corporate Takeover

From a commercial and corporate law perspective, this may involve:

• an unlawful change of director;
• changes in the composition of participants;
• re-registration of shares;
• changes to the ultimate beneficial owner;
• entry of inaccurate information into the Unified State Register;
• corporate resolutions adopted without the actual consent of participants;
• amendments to the charter without the owners’ consent;
• obtaining control over corporate bank accounts;
• disposal of real estate or other company assets;
• transactions entered into by a new director after an unlawful change of control.

Commercial courts consider, in particular, disputes arising from corporate relations, disputes concerning transactions with shares and other corporate rights, as well as derivative claims concerning registration actions if they are connected with the relevant corporate or property dispute.

The situation should be reviewed immediately if:

• a new director unexpectedly appears in the Unified State Register;
• the composition of participants changes;
• the size of shares changes;
• an unknown ultimate beneficial owner appears;
• access to corporate accounts is lost;
• the registered office is changed;
• a new version of the charter appears;
• unknown minutes or corporate resolutions are discovered;
• company property begins to be transferred or sold;
• the director or participants no longer control the company’s actual operations.

The more subsequent registration and asset transactions are carried out after the initial takeover, the more complicated the structure of the dispute may become.

Benefits of Working with Prikhodko & Partners

We help:

• review current information in the Unified State Register;
• reconstruct the history of registration actions;
• analyze corporate documents;
• review the grounds for changing the director or participants;
• document violations of corporate rights;
• prepare an application for interim relief;
• challenge unlawful corporate resolutions;
• challenge related registration actions;
• protect company assets;
• represent the client before the commercial court.

What to Check in the Event of an Unlawful Change of Control

In such a situation, it is necessary to immediately check:

• who carried out the registration action and when;
• which documents were used as the basis for the changes;
• whether the relevant general meeting resolution actually exists;
• whether the documents were signed by the actual participants;
• whether the shares were changed;
• who is listed as the new director;
• who obtained access to accounts and electronic services;
• which actions have already been taken after the change of control;
• whether there have been transactions involving real estate or other assets;
• whether there is a risk of further disposal of property.

After that, it is determined whether it is necessary to challenge the corporate resolution, the transaction involving the share, the registration action, or several interrelated elements at the same time.

Interim Relief in a Hostile Corporate Takeover

The Commercial Procedure Code allows interim measures to be applied before the main claim is filed or during consideration of the case if, without such measures, effective protection or enforcement of a future judgment may be significantly complicated.

Depending on the subject matter of the dispute, the following may be considered:

• a prohibition on certain registration actions;
• a prohibition on disposal of specific assets;
• a prohibition on certain corporate actions;
• restrictions on certain actions involving the disputed share;
• other measures directly connected with the subject matter of the future or already filed claim.

In corporate disputes, the law establishes special restrictions: interim relief should not unjustifiably paralyze the company’s activities or violate the rights of other participants, and the chosen measure must be proportionate to the claims.

When corporate control has been changed unlawfully, speed is critical: the earlier the changes are documented and the necessary interim measures are requested, the lower the risk of further disposal of assets or additional registration actions.

Which Corporate Disputes May Arise

Possible subjects of dispute may include:

• challenging a general meeting resolution;
• challenging transfer of a share;
• recovery of a share;
• determination of participants’ share sizes;
• restoration of the composition of participants;
• challenging appointment of the director;
• challenging amendments to the charter;
• challenging transactions involving corporate rights;
• restoration of corporate control;
• related claims concerning registration actions.

The Commercial Procedure Code expressly assigns disputes concerning the establishment, activities, management, and termination of a legal entity, as well as disputes concerning transactions involving corporate rights, to the jurisdiction of commercial courts.

Challenging Registration Actions in the Unified State Register

The Law of Ukraine “On State Registration of Legal Entities, Individual Entrepreneurs and Public Associations” regulates the procedure for entering information about a legal entity into the Unified State Register and the mechanisms for challenging relevant decisions, actions, or inaction in cases provided by law.

During the analysis, the lawyer reviews:

• the date of the registration action;
• the state registration authority or registrar;
• the legal basis for the changes;
• the documents submitted;
• the corporate resolution;
• the authority of the applicant;
• compliance with document form requirements;
• the sequence of subsequent registration actions;
• the connection between the registration action and the underlying corporate dispute.

In a particular case, an administrative challenge may be used in parallel with or instead of certain court claims, but the appropriate route should be determined after analyzing the entire corporate history.

Protection of Company Assets After a Change of Control

After the director or control over the company changes, transactions involving disposal of company property may be entered into.

Therefore, it is necessary to review not only the Unified State Register, but also:

• information about the company’s real estate;
• changes in the State Register of Property Rights;
• mortgages and other encumbrances;
• transactions involving vehicles;
• disposal of equipment;
• transfer of property to related parties;
• changes in banking access;
• movement of funds;
• new credit obligations;
• other significant property transactions.

Commercial courts also consider property disputes between business entities and derivative registration claims if they are connected with the relevant corporate or property dispute.

In such disputes, time often directly affects the real possibility of recovering the business or its assets.

Which Documents Are Needed to Protect the Business

Even if some documents are no longer accessible due to loss of corporate control, legal work can begin using the available information and public registers.

It is necessary to review:

• the current and previous versions of the charter;
• minutes of general meetings;
• participants’ resolutions;
• the corporate agreement;
• agreements involving shares;
• share transfer acceptance acts;
• information from the Unified State Register;
• registration documents;
• notarial documents;
• banking documents;
• documents relating to real estate and other assets;
• corporate correspondence;
• electronic evidence;
• other materials confirming actual control over the company before the violation.

Challenging General Meeting Resolutions

If the relevant resolution became the basis for changing the director, participants, or charter, its legal assessment may be a key element of the strategy for restoring control.

The following are reviewed:

• who initiated the meeting;
• how the participants were notified;
• who actually participated;
• whether the required quorum existed;
• how the votes were distributed;
• whether the minutes correspond to the actual circumstances;
• whether there are signs of forged signatures or documents;
• whether the resolution complies with the charter and law;
• which registration consequences it created.

Director’s Liability for Asset Stripping

The Commercial Procedure Code expressly provides for commercial jurisdiction over disputes between a legal entity and its officer concerning compensation for losses caused by the officer’s actions or inaction, where the claim is filed by the relevant owner or participant in the company’s interests.

Therefore, if the director:

• removed assets from the company;
• entered into knowingly unfavorable transactions;
• sold property below market value;
• transferred assets to related parties;
• used company funds for personal interests;
• exceeded corporate authority;
• committed other actions that caused losses to the company;

a separate assessment of the grounds for recovering damages may be required.

How to Protect a Business Against Corporate Raiding in Advance

It is advisable to:

• keep the charter up to date;
• enter into a corporate agreement between participants;
• establish special approval rules for significant transactions;
• limit the director’s authority where justified;
• monitor the accuracy of information in the Unified State Register;
• monitor changes in property registers;
• control electronic signatures and corporate access credentials;
• restrict access to banking systems;
• store corporate documents securely;
• have a pre-prepared emergency response plan.

Cost of Legal Assistance

The cost is affected by:

• the number of disputed registration actions;
• the number of company participants;
• the complexity of the corporate structure;
• the volume of documents;
• the existence of transactions involving shares;
• the existence of asset disposals;
• the need for interim relief;
• the number of related court claims;
• the need to challenge registration actions;
• the number of court hearings;
• the need to work with several registers;
• the urgency of the legal response.

Common Situations in a Hostile Corporate Takeover

Conclusion

Protecting a business against a hostile corporate takeover requires a prompt and comprehensive response because an unlawful change of director or participants may quickly lead to further registration and property transactions. To restore corporate control, it is necessary to reconstruct the history of changes, identify the initial violation, review the assets, and develop an interconnected strategy covering the corporate, registration, and property aspects of the dispute.

Have you discovered an unlawful change of director, participants, or beneficial owner in the Unified State Register? Submit a request on the Prikhodko & Partners Law Firm website. A lawyer will promptly review the corporate and registration history, assess the risks to the assets, and prepare a strategy for restoring control over the business.