The rights of minority shareholders have been improved in corporate squeeze-outs governed by the Law of Ukraine “on joint-stock companies,” where the owner of 95 percent of a joint-stock company’s shares forces the compulsory sale of the shares of minority shareholders for fair compensation.
After a classic David vs. Goliath battle through the Ukrainian court system, Myron Nayda, executive director of “Ukraine 2050,” recently won an impressive judicial victory (case №910/12591/18) that will enhance the rights of minority shareholders in corporate squeeze-outs in Ukraine.
Indeed, on April 28, 2021, Ukraine’s highest court on such matters, the Supreme Court (Commercial Cassation Court), overturned the decisions of the lower courts and ordered DTEK Power Trade LLC, the majority owner of DTEK Dniproenergo JSC, to compensate its minority shareholder, Myron Nayda, for pecuniary losses incurred as a result of the compulsory sale of his shares for an unfair price in the context of a corporate squeeze out.
The shortcoming of this decision is that the Supreme Court did not grant the requests of Myron Nayda to: (1) annul the approval by the supervisory board of the unfair price of the shares; and (2) declare that the price retained by the Supreme Court to determine the compensation in this case іs the fair price for the shares in this corporate squeeze‑out. This would have been perfectly logical under such circumstances and even more beneficial for all the other minority shareholders.
This matter deserves special attention in the development of corporate law of Ukraine since the Supreme Court not only upheld the right of a minority shareholder to demand compensation for having received an unfair price for his shares in the context of a compulsory sale in a corporate squeeze‑out, but also rendered a court-ordered compensation for same instead of only ordering the case to be remitted to the lower courts for further consideration with due deference to the findings of the Supreme Court.
In its decision, the Supreme Court stated that:
“5.16. As for the defendants’ allegation that at the time of the procedure of compulsory sale of shares there was a legislative conflict […] the Supreme Court notes that the way in which the defendants overcame the relevant conflict (namely, by an appraiser determining the market price for the shares to be UAH250.01 per share without providing a reasonable explanation for this valuation, rather than using the average stock exchange price of UAH773.70 per share) was clearly unfair and imposed a disproportionate burden on the minority shareholder, given that the latter has no leverage to influence the establishment of the price at which he is forced to sell.
[…]5.20. The abovementioned is sufficient for the Supreme Court to acknowledge as unfounded the conclusion of the courts of previous instances regarding the absence of all elements for a civil offense as a necessary condition for imposing civil liability in the form of compensation for damages, as the courts gave an improper legal assessment of the arguments and circumstances concerning the following:
– the joint actions of the supervisory board of the joint-stock company and the applicants’ requirement caused damages to the plaintiff;
– the joint-stock company’s evident illegal conduct through its organ (the supervisory board), consisting of the approval of the understated market value of shares, which is obviously unfair, as well as the applicant’s non-compliance with Article 65-1 of the Law of Ukraine “On Joint‑Stock Companies”, in particular, determining the correct purchase price for shares;
– there is a causal link between those actions and the damages – the shares of the plaintiff being forcibly purchased at an unfair, obviously understated price (he has not received fair compensation for the property that was alienated without his will in accordance with the Law);
– the defendant has not proved his innocence in causing the damages.”
This landmark decision of the Supreme Court is not only a remarkable personal victory for Myron Nayda, who skillfully pleaded his own case, but also significant for the protection of minority shareholder rights in Ukraine which is essential for the promotion of investments in Ukraine.
The full text of the decision of the Supreme Court (Commercial Cassation Court) can be viewed at the following link: https://reyestr.court.gov.ua/Review/96822309
Eugene Czolij is president of the Ukraine-2050 nongovernmental organization and served as president of the Ukrainian World Congress from 2008-2018. www.ukraine-2050.org. The non-governmental organization Ukraine-2050 is a non-profit organization established to help implement, within one generation – by 2050 – strategies for the sustainable development of Ukraine as a fully independent, territorially integral, democratic, reformed and economically competitive European state.
