Shareholder remedies in Poland: How do you resolve a shareholder disputes?

Shareholder disputes are among the common issues encountered in the business world. Such disputes can be highly stressful for the individuals and can have devastating consequences for the company. If you are faced with a shareholder dispute in Poland, our lawyers has extensive experience of acting for minority and majority shareholders in disputes between shareholders.
 
Shareholder disputes can arise in a number of circumstances, for example: a majority shareholders want to exclude a minority shareholder; a group of shareholders may act in a way that harms the interests of other shareholders; a shareholder-director may be acting fraudulently or shareholders may disagree on the company’s future direction.
 
As with most types of business disputes, there are several ways in which a shareholder dispute can be resolved and the most appropriate method will hinge entirely on the factors at play within the dispute, what’s written down in the contract and what’s happening inside the company itself. Usually, a resolution is reached by the parties engaging in one of the following processes:
 

• negotiation: this is often the first course of action and is the most informal method;
• mediation: this is, as dictated by many articles of association or shareholders’ agreements, often the first formal step prescribed to try and address a shareholder dispute. A neutral third-party mediator will facilitate the mediation, and it’s often highly successful in settling most types of commercial disputes;
• court action: sometimes court action turns out to be the only way of resolving a shareholder dispute, although it only ought to be considered as a last resort if other attempts fail. This is because litigation can result in relations within the company becoming even more inflamed, as well as it being a costly and long drawn-out process.

Each dispute between shareholders is unique in its own way, but the key questions remain the same for all companies:
 

1. Is there a shareholders’ agreement in place?
2. What rights are provided by the Articles of Association?
3. What were the parties’ expectations or understandings at the time the company was established and/or shareholders became members of the company?
4. What is the real root of the dispute, and what do the parties want to achieve?

 
In order to appreciate the nature of the legal remedies available under Polish law, it is first necessary to understand some underlying legal concepts.
 
The legal nature of a Polish limited company
 
A limited company is a separate legal entity, distinct from its directors and shareholders. This means, amongst other things, that a company may sue or be sued by shareholders and third parties.
The key document which sets out the rules within a company is the Articles of Association (“the Articles”). This is in effect a binding contract between the company and its shareholders. Subject to any overriding company law, the Articles determine who within a company exercises which powers on its behalf and what are the right and obligations of the parties.
 
Some companies may also have a shareholders’ agreement, which is a separate contractual agreement between shareholders setting out their rights and responsibilities as shareholders. Such documents can contain very detailed arrangements covering for example, day to day management of a company, rights of specific shareholders and exit routes for shareholders both voluntary and compulsory.
 
The position of directors
 
Directors generally have the day to day control of the company under the Articles. This means the right to make decisions for the company including whether or not to enter into any contract, or to raise finance or take any other steps in relation to the management of the company.
Generally, the board of directors must act as a majority and subject to any quorum specified in the Articles any decision simply requires a majority vote.
The rights of directors may be restricted by the Articles themselves or by a shareholders agreement governing, for example, what decisions require some form of shareholder approval.
 
The position of shareholders
 
Although directors have the day to day control of the company, shareholders hold the ultimate power. By majority vote shareholders can dismiss directors and can appoint new directors to the board (although these powers are often restricted by the Articles or in a shareholders’ agreement).
 
By taking control of the board of directors a shareholder will then be able to force the company to take the desired.
 
Shareholders do have certain statutory rights that can be of assistance. These include the right to inspect company registers and to require the company to call general meetings. Sometimes exercise of these rights can be sufficient to defuse a dispute if the issues are brought out into the open and discussed at a shareholders meeting.
 
Share sale
 
If there is a conflict between the majority shareholders and a minority shareholder the simplest solution is usually that one of the disputing parties sell their shares and exits the company. Shares may be sold to an existing shareholder, or to a new, incoming shareholder.
Where the parties have a shareholders agreement, that document will often require that the remaining shareholders approve an incoming shareholder.
 
If such a share sale can be agreed, the only residual issue is to determine the share value. Again, this process is best agreed and included in a shareholders’ agreement, but where that mechanism isn’t in place, there are methods how the share value can be established.
 
Share buyback
 
A share buyback agreement is when a company agrees to buy shares back from its shareholders. This is an increasingly popular solution to resolve shareholder disputes, particularly where there is no obvious purchaser for the shares and the remaining shareholders do not have the funds to buy out the exiting shareholder.
Share buyback arrangements also benefit the remaining shareholders by reducing the number of shares in the company and increasing the ‘per share’ value of the asset held by the remaining shareholders.
 
Court action
 
In cases where the relationship between the parties has completely broken down, the shareholders having more than 50% of votes may apply to court with the petition to exclude the minority shareholder. The claimants have to provide the evidence that there is “an important cause” for such an action and that the future cooperation between the parties is not possible.
Determining when it is “an important cause” to exclude the shareholder is complex. In short, the court will need to be satisfied that, in all the circumstances, the relationship has broken down irretrievably such that the dispute is simply not capable of being resolved in any way other than by canceling the shares which are held by the minority shareholder.
 
Summary
 
Recognising an ever-deteriorating shareholder dispute and seeking to manage and resolve it as soon as possible will result in the least disruption to the current and future successes of the company.
Shareholders disputes revolve around their own facts and battles can be won or lost based on tactical decisions made at the outcome. Accordingly, in the event of such a dispute it is recommended that formal legal advice from a lawyer with expertise in this field is sought at the earliest opportunity.