Second, the panel of judges pointed out that when the securities market goes down the delay with the sale of shares because of their arrest must bring loss to shareholders who intended to sell them. Controversial interim measures, that were in force for more than two years, in respect of a controlling stake in the company in a dynamic sector of the economy gives rise to damages for the owners of shares, because such measures deprived them of the right to dispose of shares by selling at the highest possible price or of giving the shares over as collateral to a loan, etc.
Third, the court should not reject the claim for damages caused by unreasonable interim measures (article 98 of the Code of Procedure in Commercial Courts) only on the grounds that the amount of damages cannot be established with a reasonable degree of certainty. In such case, the amount of damages is determined by court taking into account all the circumstances and based on the principle of fairness and proportionality.
In view of these principles, the price of shares that could be obtained by free management of the company not burdened with unsubstantiated claims and interim measures should be taken into account.
Let me note that this conclusion is very important. If the Presidium of the Supreme Commercial Court supports these and other ideas of the panel of judges, we’ll get a brand new practice in the recovery of damages in the circumstances like this as well as in other situations.
On the other hand, courts have to establish a clear approach to determination of the amount of these ‘assumed’ losses to avoid satisfying clearly excessive and unreasonable demands. Yet despite this, the emergence of the Ruling of the Supreme Court № VAS-2929/11 is welcome.
In conclusion, I would like to point out an important conclusion reached by the panel of judges: the dismissal of the claim for damages would have meant the absence of preventive effect to those who claim unreasonable interim measures.
At the same time, the rule of law should facilitate neither the presentation of unreasonable demands nor the exoneration of those who claim them.
Muranov, Chernyakov & Partners
The term ‘corporate raid’ - meaning a hostile takeover but loaded with particularly negative connotation – has been brought into the language of the Supreme Commercial (Arbitrazh) Court. The novelty is remarkable: the justices demonstrated that they do not look on raiders with a friendly eye and intend to hold them liable for what they do.
In 2005 Sigma Capital Partners acquired an interest in shares of the mobile operator Smarts. As part of court proceedings Sigma managed to put into action extensive interim measures such as the ban on transactions with Smarts’s shares. In addition, the company was not allowed to change share capital, to carry out reorganization or liquidation. The measures were in place for two and a half years.
In May 2009, shareholders filed a suit against Sigma demanding the compensation of $100 million for unjustified restrictions on the company’s activity. Court in St. Petersburg has rejected the claim stating that shareholders themselves requested the moratorium on transactions with shares, as a defensive measure against the takeover, and that the prove of the amount of damages caused by the Sigma’s actions is inconclusive. The Court of Cassation upheld that decision.
The panel of judges of the Supreme Commercial Court disagreed. The judges noted that society needs protection against those who initiate unjustified claims and seek to enforce interim measures as a means to intimidate and to harm. The court, they said, may not deny a claim for damages on the grounds that their size ‘could not be established with a reasonable degree of confidence’; on the contrary, in such case the court must determine damages itself.
Nikolay Stepanov from Muranov, Chernyakov & Partners shares his thoughts on the case and how it will influence the court’s practice on the resolution of corporate conflicts.
Nikolay Stepanov
Muranov, Chernyakov & Partners
+7 495 783-74-50
n.stepanov@rospravo.ru
Despite the fact that the country's leaders have long proclaimed raids a major problem of the Russian economy, no legal act contains the definition of a ‘raider attack’. The reason is not only active (at least in the recent past) resistance of the raider lobby, but the diversity of the phenomenon which includes various kinds of activities - from visibly criminal grabs of someone else's property by force to seemingly legal court actions.
Ten years ago, the use of force to dispossess the rightful owners of their companies or property was common. Today, such methods are rare; something like that may happen in the regions but not in the center of the country.
In the capitals, raiders use legal actions to intercept control over the target company as well as - and this is especially upsetting - the administrative/law-enforcement pressure on the owners. The media write about this a lot.
Anyway, all kinds of raids are an illegal seizure of someone else's property.
Yet even when owners successfully defended themselves from raiders, they still suffer substantial losses. The Ruling of the Supreme Commercial Court of the Russian Federation №VAS-2929/11 of May 31, 2011 can help victims of raiders’ attacks recoup their losses.
First, the judges noted that shareholders of any company by wise and prudent investment can reasonably expect to earn an income, commensurate with the risks of the industry in general and the respective company in particular, not lower than in similar companies. If, however, because of security measures they are unable to develop the business of the corporation using the same tools as competitors (loans, public offerings of stocks and bonds, mergers and acquisitions, restructuring, etc.), then the company doesn’t grow at the same pace as other market players.
Second, the panel of judges pointed out that when the securities market goes down the delay with the sale of shares because of their arrest must bring loss to shareholders who intended to sell them. Controversial interim measures, that were in force for more than two years, in respect of a controlling stake in the company in a dynamic sector of the economy gives rise to damages for the owners of shares, because such measures deprived them of the right to dispose of shares by selling at the highest possible price or of giving the shares over as collateral to a loan, etc.
Third, the court should not reject the claim for damages caused by unreasonable interim measures (article 98 of the Code of Procedure in Commercial Courts) only on the grounds that the amount of damages cannot be established with a reasonable degree of certainty. In such case, the amount of damages is determined by court taking into account all the circumstances and based on the principle of fairness and proportionality.
In view of these principles, the price of shares that could be obtained by free management of the company not burdened with unsubstantiated claims and interim measures should be taken into account.
Let me note that this conclusion is very important. If the Presidium of the Supreme Commercial Court supports these and other ideas of the panel of judges, we’ll get a brand new practice in the recovery of damages in the circumstances like this as well as in other situations.
On the other hand, courts have to establish a clear approach to determination of the amount of these ‘assumed’ losses to avoid satisfying clearly excessive and unreasonable demands. Yet despite this, the emergence of the Ruling of the Supreme Court № VAS-2929/11 is welcome.
In conclusion, I would like to point out an important conclusion reached by the panel of judges: the dismissal of the claim for damages would have meant the absence of preventive effect to those who claim unreasonable interim measures.
At the same time, the rule of law should facilitate neither the presentation of unreasonable demands nor the exoneration of those who claim them.
Muranov, Chernyakov & Partners