Tomato: three friends from the garag

Corporate disputes can sometimes prove to be a harsh lesson for those who initiate them. A renowned company (let’s call it “Pomidor” for our purposes) operating in the FMCG sector, listed on the Warsaw Stock Exchange some time ago, has learned this lesson. As part of this side business, it purchased a several per cent stake in another company (“Mielonka”) from the FMCG market. However, after several years, when the owners of Mielonka decided to delist it from the stock exchange, the management board of Pomidor, dissatisfied with the buy-out proposal put forward in the tender offer, decided to appeal against the resolutions on the abolition of the dematerialisation of Mielonka shares, questioning the price that had been put forward in the tender offer to purchase the shares.

To Pomidor’s surprise, the dispute moved to its forum – as the majority shareholder of Mielonka decided to purchase a stake in the company. Interestingly, as the owner of the shares, when he began to investigate the issue of ownership status, he discovered that there was most likely an informal agreement of shareholders in Pomidor’s shareholding structure, which together had been pursuing a uniform ownership policy towards the company for many years, as well as voting in unison at meetings, including on key issues for the company.

The Public Offering Act provides for a number of information and call obligations imposed on trading participants and related to exceeding a certain share threshold or entering into agreements. Such obligations also apply to members of a company’s shareholders’ agreement, and failure to comply with them results, inter alia, in the loss of voting rights, and this by operation of law. Obviously, if the loss of voting rights relates to a significant shareholding, this can be quite a problem for the company, especially if its articles of association provide for certain powers/obligations in relation to that shareholding. The sanction of loss of voting rights is very severe, and to this day there is some debate as to whether it is too severe – however, the legislator considered that if someone is operating on the public market, transparency of such an entity’s activities, and in particular the situation in its shareholder structure, is of paramount importance. The omission of actual links could lead to a concealment of the ties linking the entities in question and distort the actual shareholding structure, thus misleading other market participants.

Pomidor’s new shareholder decided to file a lawsuit with the court with a request to secure claims for, inter alia, determining the non-existence/validity of resolutions adopted by the votes of the members of the agreement. In the application, he argued that, in all probability, Pomidor’s shareholding structure included an agreement that had not been notified in accordance with the Public Offering Act and, in addition, had not carried out the mandatory call for shares and, consequently, those who had voted on the resolutions were not entitled to vote at all.

The court granted injunctive relief on the basis that there was an agreement in the company’s shareholding. Pomidor’s surprised majority shareholder tried to fight this ruling, but this proved much more difficult than he thought. The fact that an agreement between a number of entities exists was evidenced not only by consensual votes at general meetings (for a number of years not only were there no objections to the resolutions, but no one even abstained from voting), the making of joint donations to affiliated companies, family ties, but such well-known facts as the founding of the company by three friends long before its IPO. Members of the agreement have repeatedly made statements in the media treating the business as a joint one and explicitly admitting that they agree on the direction of its development, and of course have sat together on the company’s supervisory and management bodies. Also in the trade press, the joint and sustainable policies of the members of the agreement were recognised.

The icing on the cake was the information on Pomidor’s website that the company was founded in the garage of a friend in the early 1990s and that the colleagues, as was the case at the time, financed the business with loans taken out against their personal assets.

Tomato and its shareholder therefore decided to end the dispute quickly. The decision was the right one – after all, the fight over a portfolio investment turned out to be less important than the risk of losing the company one had been building all one’s life, and potentially even violating strict public offering regulations could lead to that. Interestingly, Tomato rolled itself off the main trading floor after the dispute and the three friends are now still able to continue their joint business without nosy investors.