Success of Kochański & Partners’ client in a shareholder dispute – court says “no” to disguised in-kind contributions
Kochański & Partners successfully advised a shareholder of a Polish public company in a multithreaded dispute against other shareholders. The final stage of the court battle concerned the validity of actions taken by the company shareholders and ended favourably for Kochański & Partners’ client. In the final and non-appealable judgment, the Court of Appeal in Kraków found that the shareholders had acted to wilfully circumvent the law, thus rendering their actions of taking up newly issued shares void.
The case concerned making disguised in-kind contributions, known as “pumping-in” of equity. This involved circumventing share capital increase regulations whereby capital increased by way of an in-kind contribution requires a market valuation of assets brought into a company. However, the case involved the general meeting passing a resolution on a cash (not in-kind) capital increase to avoid the need for the brought-in assets to be valued, thus making it possible for the company to sell an overvalued enterprise, setting off mutual claims for making cash contributions for the acquired shares against the revalued claim for paying the enterprise price, resulting in share capital not being covered in full.
The court shared the view of Kochański & Partners’ lawyers and found the share subscription agreements to be void, considering these as being concluded to circumvent the law. The court also held that, pursuant to Article 17 of the Commercial Companies Code, subscription agreements entered into without the required resolution are absolutely void if they do not implement the provisions of a resolution to increase share capital. Although the present case involved the resolution requiring the shares to be offered to an external investor, the management board entered into subscription agreements with some of the existing shareholders of the company.