CCC SC: Disputes Over Compensation for Share Buyout Are Heard by Commercial Courts

A minority shareholder may file a lawsuit to recover fair compensation for forcibly redeemed shares against the buyer, its affiliated entities, the ultimate beneficial owner, and the issuer. In such legal relationships, the doctrine of "piercing the corporate veil" applies, as the defendants effectively constitute a single economic group, share aligned interests, and the ultimate beneficial owner is the actual beneficiary. The application of this doctrine is justified to achieve a fair outcome and facilitate the enforcement of court decisions. The dispute falls within the jurisdiction of commercial courts.

This conclusion was reached by the Judicial Chamber for Corporate Disputes, Corporate Rights, and Securities of the Cassation Commercial Court within the Supreme Court, as reported by the Supreme Court's press service. The company BARLENCO LTD, an affiliate of METINVEST B.V., Metinvest International S.A., and Metinvest Holding LLC, which held a dominant controlling stake in Azovstal PJSC, forcibly acquired shares of the company from the minority shareholder Synergia-7 PJSC. The buyout was conducted in accordance with Article 65-2 of the Law of Ukraine "On Joint-Stock Companies" (squeeze-out procedure). An agreement was concluded between the affiliated entities and BARLENCO LTD, under which the latter executed the mandatory share buyout. Upon completion of the squeeze-out procedure, BARLENCO LTD resold all forcibly acquired shares to METINVEST B.V.. Other affiliated shareholders also transferred their shares to METINVEST B.V., which became the sole owner of 100% of Azovstal PJSC shares, while the ultimate beneficial owner remained unchanged.

The minority shareholder considered the buyout price unfair and determined in violation of legal requirements. Therefore, they filed a lawsuit against the share purchaser, its affiliated entity, and the ultimate beneficial owner, seeking joint and several recovery of fair compensation for the forcibly redeemed shares.

The courts of first instance and appeal fully upheld the claims.

The Judicial Chamber of the Cassation Commercial Court of the Supreme Court, leaving the previous court decisions unchanged, found no grounds to deviate from established legal positions in this category of disputes. Furthermore, regarding the claims against the ultimate beneficial owner, the Judicial Chamber stated that applying the "piercing the corporate veil" doctrine was justified, as the defendants effectively formed a single economic group with aligned interests. A key characteristic of the group’s operations is that one entity within the group may act in the interests of others, making it impossible to determine who precisely benefited from the forced sale of shares at an undervalued price. The beneficiary in such cases may be any legal entity within the group, while the ultimate beneficiary is the ultimate beneficial owner.