How to determine the invalidity of shares in a joint-stock company

At the general meeting of a joint stock company in the new technology industry, a resolution was passed to (i) adopt an incentive program for the company’s Management Board, (ii) issue subscription warrants convertible into company shares that can be taken up by members of the company’s Management Board in order to implement the incentive program, and (iii) increase the conditional share capital with the exclusion of subscription rights in order to implement the incentive program

Subsequently, the company’s general meeting granted more than 3 million subscription warrants to two members of the board of directors, who applied for the registration of more than 3 million shares in the company indicating that they had paid for these shares. The registry court registered the increase in the company’s share capital.
However, it did not appear from the company’s financial statements that the company’s assets had increased as a result of the payment for the newly issued shares and, in addition, it indicated that the company had incurred a financial cost in the form of issuing subscription warrants with a value corresponding to the nominal value of the newly issued shares taken up by the company’s management board. Thus, it was apparent from the financial statements that it was not the shareholders (members of the board of directors) who had paid for the newly issued shares, as they had declared to the registry court under threat of criminal liability, but that the company, i.e. indirectly all shareholders, had paid for them.

Citing these circumstances, some of the shareholders requested security for the claim to establish the invalidity of the newly issued shares. The District Court in Warsaw granted security for this claim by, inter alia, prohibiting the exercise of any rights from the newly issued shares until the case for determining the invalidity of the shares has become final. Significantly, the Court of Appeal in Warsaw upheld this security, at the same time confirming the admissibility of such security and the admissibility of pursuing such a claim. Nota bene the SO and SA in Warsaw prejudged the possibility of pursuing such a claim and obtaining such security by granting security for a claim for establishing the invalidity of shares in a corporate dispute concerning another company, but this will be discussed in another post.
The above case shows most clearly that it is worth fighting for one’s rights and this is not nullified either by the registration of the share capital increase in the National Court Register or by the expiry of deadlines for challenging the resolution on the share capital increase. In addition, the invalidity of the shares does not result from the resolution itself on the issue of subscription warrants and conditional share capital, but from subsequent actions (in this particular case, from the failure to pay for the newly issued shares by the shareholders who took up these shares). This example also demonstrates that it is worth fighting for one’s rights, as an increase in share capital from the company’s funds, i.e. indirectly from the funds of all shareholders, to the benefit of only selected shareholders, results in a material depletion of the stake held and most often changes the balance of power in the company, which also translates into a measurable interest of the shareholders.d