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Corporate disputes related to challenging the decisions of a company’s management bodies are among the most complex in judicial practice. Since legislation does not always provide exhaustive answers, the main reference point for businesses and lawyers becomes the legal positions of the Supreme Court. We will examine the first of the five most important positions, which will help you better navigate this issue.
In its practice, the Supreme Court follows an approach whereby not every procedural violation automatically renders a decision of the general meeting invalid. What matters most is whether this violation led to an actual violation of the corporate rights or interests of a participant.
In its ruling of April 18, 2024 in case No. 924/560/23, the Supreme Court systematized the main grounds for invalidating a decision of the general meeting:
The decision contradicts the provisions of the legislation.
The requirements of the law or the charter were violated in convening and holding the meeting.
A participant was deprived of the opportunity to take part in the meeting.
The decision directly violates the rights or legitimate interests of a shareholder.
Some violations are so significant that they always lead to a decision being declared invalid. These are, in particular, the following cases:
Lack of a quorum or the impossibility of establishing it. Without a quorum, decisions cannot be taken at all.
Voting on matters that were not included in the agenda, without the consent of all participants present.
The absence of minutes of the general meeting, duly signed by the chairman and the secretary.
The second group includes violations that, although committed, do not necessarily lead to the cancellation of the decision. For example, if a participant was not duly notified of the convening of the shareholders’ meeting, this may be grounds for challenging the decision of the general meeting, but only if:
They had no opportunity to take part in the meeting.
And the adopted decision contradicts the law, the charter, or directly violates their rights.
Thus, the court will always assess not only the formal error, but also its actual consequences for the specific participant.
In the modern Ukrainian legal field, increasing attention is being paid to the issue not only of a direct violation of corporate rights, but also of protecting the interests of the company and its participants. This is becoming a key element in the consideration of corporate disputes. It is important that courts assess not only the lawfulness of actions, but also their possible consequences for the functioning of the company and the exercise of shareholders’ rights.
Recent decisions of the Supreme Court (SC) vividly demonstrate a new approach to corporate governance. An illustrative example is case No. 922/2013/21, where the plaintiff challenged a decision of the supervisory board due to violations in its composition, as well as a decision of the general meeting convened by this board. The plaintiff argued that every shareholder has the right for the management bodies to act strictly in accordance with the law. This is, undoubtedly, an abstract but important interest of “each and every one”.
However, the Supreme Court went further, examining the potential impact on the company’s activities:
Ineffectiveness of the claim: The court found that invalidating the decisions of the supervisory board, and following them the decisions of the general meeting, is not an effective mechanism for protecting the plaintiff’s rights. Such a step would not restore their management rights, but would only create legal uncertainty. This may destabilize the work of the company, which is responsible for its success.
The recommended path: Instead of going to court, the SC advised the plaintiff to first turn to the supervisory board itself with a demand to convene a meeting to bring its composition into compliance with the requirements of the legislation.
Avoiding destabilization: The court emphasized that cancelling decisions solely on the grounds that they were convened by an unlawful composition could completely block the company’s activities. This would lead to disproportionate interference by the judicial system in corporate and business processes.
This position of the SC is consistent with the principle widespread in the world, the “business judgment rule”. This means that judges should not substitute themselves for the company’s management and assess the effectiveness of its business decisions. Their role is to check lawfulness, not expediency.
Invalidating decisions of the general meeting, if it upsets the balance of interests, may lead to excessive interference in the company’s activities. The new approach of the Supreme Court demonstrates that the Ukrainian judicial system is increasingly oriented toward protecting the stability of business, seeking a golden mean between the interests of an individual participant and the interests of the entire company. This contributes to greater predictability in the business environment and the development of a corporate culture based on constructive dialogue rather than court wars.
In the Ukrainian legal field there are significant differences regarding the time limits for challenging decisions of the general meeting, which directly depends on the organizational and legal form of the legal entity. This inconsistency often causes confusion, since limitation periods may differ several times over.
For joint-stock companies this period is six months from the moment the decision is adopted.
For limited and additional liability companies (LLCs and ALCs) it is longer, one year.
And for all other legal entities, such as cooperatives or public associations, the general period of three years applies.
This difference creates legal uncertainty, especially when it comes to applying the shortened period specified in Article 258 of the Civil Code of Ukraine.
Clause 8 of part 2 of Article 258 of the Civil Code of Ukraine establishes a shortened one-year period for claims “on invalidating a decision of the general meeting of a company”. This wording long raised the question: does it concern only business companies, or can it be extended to other types of legal entities that are not companies, for example, cooperatives or farming enterprises?
The point in this matter was settled by the Supreme Court sitting as the chamber for the consideration of corporate disputes, issuing a ruling of September 14, 2022 in case No. 909/298/21.
The Supreme Court concluded that the special one-year limitation period applies exclusively to limited and additional liability companies. The court substantiated its position as follows:
A special law: The Law of Ukraine “On Limited and Additional Liability Companies” directly establishes special provisions that concern specifically this type of legal entity.
Precise wording: Clause 8 of Article 258 of the Civil Code of Ukraine, although it does not contain an expanded interpretation of the term “company”, logically limits its application.
Thus, the one-year period for challenging does not extend to legal entities of other organizational and legal forms, such as public organizations, consumer societies or, for example, an HOA (Association of Co-owners of an Apartment Building). This position is supported in the subsequent practice of the SC, in particular in the ruling of April 16, 2024 in case No. 910/21426/21. Thanks to these decisions, businesses and lawyers have gained greater predictability in the process of corporate disputes, which helps to avoid unnecessary litigation due to missed deadlines.
In litigation, especially in corporate disputes, the key point is the correct choice of instrument for protecting one’s rights. It is not enough simply to file a claim; it is important that the chosen method be effective. This means that it must not merely state the violation, but actually restore the violated right, without the need to go to court again.
Practice shows that invalidating a decision of the general meeting is not always effective. For example, if a plaintiff wants to regain the status of a company participant that they lost after a meeting decision on their exclusion, merely invalidating the decision may be too little.
The Supreme Court, in its ruling of December 11, 2023 in case No. 907/922/21, explained that:
Consequences for other participants: If, after the decision to exclude a participant, the composition of participants, the size of their shares, or the authorized capital changed, then invalidating the decision would affect the rights of other, bona fide participants. Such a decision would not be a direct basis for returning the plaintiff to the register, and therefore would not restore their position.
The correct method of protection: In such cases, an effective method of protection is a claim to establish the size of the authorized capital and the participants’ shares, since this will make it possible to restore the plaintiff’s status in the register.
The importance of context: The effectiveness of a method of protection must always be assessed taking into account the specific circumstances of the case, whether the composition of participants changed, whether there was a change in the authorized capital, and so on.
Another important issue in corporate disputes is whether a small size of a participant’s share in the authorized capital can be grounds for refusing to satisfy their claim?
Some countries, for example Spain or Italy, establish a so-called “property qualification”, according to which only those shareholders who own a certain share (1%, 5%, and so on) may challenge decisions of the general meeting. This is done to avoid abuses by minority shareholders. However, such an approach may limit the rights of minority shareholders and make their participation in the company purely nominal.
The Supreme Court holds a different position. In its ruling of January 12, 2023 in case No. 916/1143/21, the court directly stated that:
The right to vote is more important than the size of the share: Refusing a claim solely because the plaintiff owns a small share is unacceptable.
Influence is not limited to voting: A participant’s influence on a decision is not limited to voting itself. Their proposals, speeches and arguments may convince other participants, which ultimately will change the result of the vote.
Thus, Ukrainian judicial practice emphasizes that every participant, regardless of the size of their share, has the right to effective protection of their rights, and their voice may carry weight that goes far beyond the percentage specified in the authorized capital.
Yes, a participant or shareholder may challenge a decision adopted in violation of the law or the charter, or in violation of their rights.
Violation of the procedure for convening and holding the meeting, lack of a quorum, violation of a participant’s rights, or the adoption of a decision beyond the scope of competence.
Challenging is limited by time limits, so one should not delay; the specific period depends on the type of decision, and it is best to verify it with a lawyer.
Such disputes are heard by commercial courts; the correct formulation of demands and the evidentiary basis are key to success.
Yes, corporate disputes are complex, and the support of a lawyer significantly increases the chances of cancelling an unlawful decision.
Author: Ilona Melnychuk, attorney In Brief You can dissolve a marriage through the registry office (DRATS, the body for the state registration of civil status
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