Recent years were difficult for many businesses due to thin financing and other negative market conditions. This situation brought to the surface a vast number of shareholders, investment and post acquisition disputes. Resolving such disputes may be difficult as it requires insight of local realities and ways of doing business in the CIS as well as advanced understanding of international commercial arbitration.
Combining expertise in both dispute resolution and M&A practices allowed AstapovLawyers International Law Group to become one of the leading post M&A and shareholders dispute resolution firm in CIS region. This, however, would not to be possible without understanding the “ localities” of doing business in the region.
Currently AstapovLawyers actively participates in about a dozen of multimillion dollar cases in international arbitration forums such as LCIA and ICC combined with supporting litigations in high court of justice in London and a number of offshore jurisdictions, where holding companies are usually incorporated. The area of corporate dispute is clearly becoming a new, self-standing, legal practice requiring unique skills.
Usually the investments and post-M&A disputes related to valuation, price adjustment, working capital adjustment etc. They may also emerge with relation to performance – based mechanisms, such as exits, call and put options, earn-outs etc. It is not surprising that due to drop of business in value the buyer would be more willing to look into the past and rediscovered, whether everything was indeed disclosed during due diligence, whether there are no breaches of warranties and is there a way to receive damages or rescind the transaction. International commercial arbitration is mostly used for such disputes. In this case fraud is also alleged quite often (which falls out of arbitration and ends up litigated in court).
What should be pointed out, however, is that local transactions, despite using English law, have many peculiarities such as verbal and written gentlemen agreements, side letters, side financing, silent partners, etc. In order to adequately present to the international tribunal whether the meeting of the minds actually took place and what is related to, the lawyers should be very much familiar with this issue.
Shareholder disputes usually related to corporate governance and breach of shareholders agreements. In this case, when times are good, everybody is happy, distribute profit and do not pay too much attention into governance. When there is a default or insolvency – everybody is eager to find out whom to blame. Such disputes usually relate to breach of veto rights, engagement in transactions, which required specific approvals, etc.
What is interesting to note, is that in many of such disputes there are a number of supporting procedures in the jurisdictions, where holding companies are incorporated. Those usually include Cyprus, BVI, Island of Man, Jersey and Guernsey, etc. In those jurisdictions an interim order in support of arbitration is thought, arresting the assets or prohibiting the directors from certain actions. In some cases a receiver may be imposed to take over the management of the company and the group until the dispute is resolved. Discovery exercises are also often conducted through such court proceedings. The party may request the court to oblige the other party to produce all the documents related to the matter, even if such documents are harmful to the interested of the other side. Non-compliance with such order may lead to severe consequences. This is specially true, if a parent company or subsidiary is incorporated in the US. The US law provides for far reaching mechanism of piercing of corporate veil, disclosure and discovery, anti-corruption policy, etc.
Such practice trends lead us to development of office network in such jurisdiction, which may be helpful for litigation support purposes.
Of course, it is better to prevent dispute in M&A transaction or post acquisition. For this purpose there is nothing more helpful, then careful drafting of transactional documents and careful document management. Everything relating to transaction including correspondence, request for documents, disclosure information, should be preserved, as it all may be used for your benefit during the dispute. It never hurts to have reliable compliance officer or corporate secretary to take care of shareholders matters and approvals.
If dispute emerges, you know where to go!
Authors: Oleh Malskyy, Andrey Astapov
Source: Meridian
