“Hot shares” – a reverse corporate dispute

Corporate disputes are generally a struggle between shareholders for control of the company or to maintain the status quo. What a very different dispute arose between former and current shareholders of a catering company.

Married couple A sold 100% of the shares in the limited liability company’s share capital to married couple B. At the same time, prior to the transaction itself, Marriage A removed itself from the Board of Directors of the limited liability company and appointed Marriage B to the Board of Directors, who continued to operate the limited liability company.
A few months after the transaction, Marriage A received a declaration from Marriage B waiving the legal effects of the share purchase. According to Mr and Mrs B, their declaration to acquire the shares was made under the influence of an error deceitfully induced by Mr and Mrs A to mislead Mr and Mrs B as to the financial condition of the limited liability company. Needless to say, together with this declaration, marriage B called on marriage A to repay the entire sale price of the shares. After the expiry of the time limit set by marriage B in the summons, marriage B sent information to marriage A about its resignation from the management board and indicated that, in view of the withdrawal from the share purchase agreement, it was marriage A that had the power to appoint a new management board for the company. At the same time, Mr and Mrs B abandoned the permanent assets of the limited liability company without adequate security and left the limited liability company with open contracts, e.g. with a rental agreement for premises.
It is apparent at first glance that the reasons given by Mr and Mrs B to indicate that they had been misled by Mr and Mrs A and in a deceitful manner are, to put it mildly, “far-fetched”. Among these reasons, Mr and Mrs B pointed to the repayment by Mr and Mrs A of the liabilities of the limited liability company following the acquisition of the shares, which Mr and Mrs A had undertaken to pay in an agreement with Mr and Mrs B concluded at the same time as the share purchase agreement. The declaration of waiver itself took place immediately after the loss of the limited liability company’s main contractor and the loss of key personnel.

Well the effectiveness of the waiver will ultimately be decided by the court. Nevertheless, it should be borne in mind that if a state of insolvency of the limited liability company within the meaning of bankruptcy law has arisen by the time of the filing of the withdrawal by Mr and Mrs B, it is incumbent on Spouses B to file a bankruptcy petition. Nor does the mere filing of a ‘stretched’ declaration of withdrawal from the share sale agreement relieve the B spouses from securing the assets of the limited liability company, as well as from appointing a new board of directors to perform the obligations arising from, for example, the National Court Register Act. Failure to perform these duties may result in spouses B being liable with their own assets for the liabilities of the limited liability company, as well as other sanctions prescribed by law.
UPDATE: After this text had already been written, the registry court, upon the application of marriage A to remove them from the KRS ex officio, removed them as partners of the company and entered marriage B. At the same time, it obliged marriage B to elect the Board of Directors on pain of a fine. This case demonstrates not to create “stretched” legal constructions, as they may generate additional negative legal consequences.