Legal mechanism for assessing the rights of shareholders under the conditions of obligatory consolidation of corporate control
Creators: name: Kostruba, Anatoliy
Publisher: name: figshare
Year: 2022
Subjects: subject: 180121 Legal Practice, Lawyering and the Legal Profession
subject: FOS: Law
subject: Law
subject: 180199 Law not elsewhere classified
subject: 180104 Civil Law and Procedure
subject: 180109 Corporations and Associations Law

description: Ensuring the protection of rights of parties in corporate relations under the conditions of obligatory consolidation of corporate control requires the definition of a fair price of a small block of shares in a joint-stock company that is subject to compulsory disposal in favor of a beneficiary. There is no doubt that observance of the balance of interests of parties in corporate legal relations in this area is achieved by the conflict free mechanism of its pricing. As of today, the appropriate procedure has not been provided. The position of the Grand Chamber of the Supreme Court regarding the outlined range of issues clearly indicates the need for systemic changes in the mechanism of obligatory consolidation of corporate control. It is obvious that its introduction into legal framework requires more effective compensatory levers to ensure the rights of a weaker party, which, in our opinion, are the cessation of ownership of shares as a result of alienation or acquisition of such right <em>under the claim of a person concerned by virtue of a court decision.</em><br> Under action proceedings, a court assesses the criterion of justice in determining the value of a company`s shares being disposed and verifies the grounds for creation of rights of action and their regulatory reasonableness. Fair price determines the fair value of a share considering the economic indicators of the company, which determine the prospect of its development. In this case, the company is subject to an assessment as an entity, but not as a set of assets or the binding demand for payment of dividends. It should be noted that the regulatory requirement for fixed price may not correspond to the fair balance criterion. <em>On the model of Japan and Hong Kong, the price of acquirement shall have an exceptionally low threshold value of the relevant price.</em> Currently, it is widely recognized that the market price cannot serve as a benchmark to achieve fair value, since it may be discounted relative to the cost of a liability. When deciding on fair compensation alternative methods of evaluation should be considered, such as discounting cash flows (technique used to calculate the current (present) cost of expected revenues and expenses, comparison of multiples and quotation of shares in the securities market, analog assessment method, etc. Incidentally, the positive experience of judicial control of the pricing procedures is enshrined in the law of Germany (<em>Articles 327b, 327C of the Germany Law On Joint Stock Companies</em>). In the UK, the form of judicial control over the procedure for compulsory acquisition of ownership of shares is the court discretion to independently determine the terms on which the offeror is entitled and obliged to purchase shares <em>(Article 988 of the Law on Companies of 2006)</em>, including in the case of establishing their unfair value. Corporate legislation of Hong Kong provides compensatory mechanism against potential abuse by the holder of the dominant block of shares in a joint stock company, which includes the competence of a court, under the request of a minority shareholder, to decide on the absence of right of compulsory redemption of shares of minority shareholders, establishment of a fair price of acquisition, and has a discretion to independently exercise any powers if, at the request of the shareholder, it believes that the company's affairs are or was conducted in a manner unfairly harming the interests of shareholders. In this case, the court may adopt any order which, in its opinion, is necessary and issue an order to restrict the company`s business or an order to perform actions, an order to appoint a recipient or manager of the company's property or its part. Herewith, the court may even specify the powers and responsibilities of the recipient or manager and determine the remuneration.