SC: Former Shareholder Cannot Challenge General Meeting Decisions After Forced Sale

From the moment of the forced sale of shares during martial law, an individual loses the corresponding corporate rights to manage the company's activities, as well as the right to challenge decisions made by the general meeting of shareholders elected by the new shareholders. While protecting their right to ownership of the shares, the individual may challenge in court the transactions based on which the forced sale of the shares occurred. This conclusion was made by the Commercial Cassation Court of the Supreme Court, as reported by the press service of the Supreme Court.

In this case, the company was the owner of registered non-documentary shares issued by a joint-stock company. On November 6, 2022, the company’s shares were transferred to the state under the order of the Commander of the Logistics Forces of the Armed Forces of Ukraine and the order of the military unit commander. As a result of the forced sale of the shares, a general shareholders' meeting was held, a new version of the company's charter was approved, and registration actions were carried out based on these changes.

The plaintiff argued that the decisions of the general shareholders' meeting, the revised version of the charter, and the subsequent registration actions were illegal. However, the courts of first and appeal instances rejected the claims, noting that the plaintiff was no longer a shareholder of the company at the time of the disputed general meeting.

The Supreme Court's Commercial Cassation Court amended the reasoning of the decisions of the lower courts, while leaving other parts unchanged.

The ability to exercise corporate rights, including the right to manage the company through participation in the shareholders' meetings, is directly related to the ownership of the shares. However, since November 6, 2022, the ownership of the shares was transferred to the state of Ukraine, represented by the Ministry of Defense, thus the plaintiff ceased to be a shareholder and no longer held corporate rights.

The plaintiff's claim that they are taking steps to restore their rights to the shares does not negate these conclusions, as simply filing a lawsuit to challenge transactions regarding the transfer of securities does not indicate any legal (corporate) relationship with the joint-stock company.

While defending their right to ownership of the shares, the plaintiff has the right to challenge the transactions that led to the forced sale of the shares. However, this does not indicate that the plaintiff has a protected interest in the decisions made by the company's shareholders after the forced sale of their shares, as the cessation of ownership of the shares indicates the absence of a legitimate interest in managing the company, which is now managed by the new shareholders. From the moment the right to the shares is lost, the individual also loses the corresponding corporate rights, including the right to challenge decisions made by the new shareholders at the general meeting.