Ineffectiveness of a declaration of rescission of the acquisition of shares in a limited liability company

In mid-2018, one married couple (“Sellers“) sold to another married couple (“Buyers“) 100% of the shares in a limited liability company, which included a restaurant business. On the day of the sale, the 2017 financial statements were approved and the composition of the company’s Board of Directors changed from the Sellers to the Buyers. On the same day, in addition to the share sale agreement, the parties signed a mutual settlement agreement under which they undertook to provide other services.

A short time after the transaction, the buyers demanded the return of part of the funds from the sale of the shares and ceased to perform the mutual settlement agreement. A few months after the acquisition of the shares, they ceased the restaurant business and submitted declarations “to evade the legal effects of a declaration of intent (purchase of shares) made under the influence of a fraudulent error”. The Buyers alleged that, inter alia, the Sellers had not been presented with a correct balance sheet and profit and loss account prior to the acquisition of the shares and that the Sellers had … performed the mutual settlement agreement to which they had committed themselves.

At the same time, the Purchasers took a number of actions, inter alia, leading to their deletion from the company’s KRS as owners of the shares and members of the Management Board, and have just brought an action to establish the effectiveness of the declaration on the evasion of the legal effects of the purchase of the shares.

The Regional Court in Białystok, in its judgment of 30.05.2022, dismissed the Purchasers’ actions in the joined case against the Sellers in full, sharing the Sellers’ position. Firstly, the Court stated that the Purchasers had not demonstrated a legal interest in requesting the determination of the effectiveness of the rescission of the declaration of will, since they themselves indicated that they were entitled to a further-reaching claim for payment. Secondly, according to the Court, even disregarding the above, the Purchasers failed to prove the premises justifying the revocation of the legal effects of their declaration of intent. As the Court pointed out:

“the plaintiffs were able to analyse the company’s situation in detail and had the opportunity to inspect any documents. The defendants did not present any document that was false, forged or falsified. They reported on how the restaurant was operating. In the months of July-September, the restaurant did not make a profit – as indicated by the defendant – and in the following month a profit, albeit small, was made, and the reasons for the lack of economic success were attributed to the lack of experience in running the restaurant. Any minor settlement of business costs was settled by the parties in the mutual settlement agreement. Therefore, there are no grounds to conclude that the plaintiffs acted under the influence of an error as to the content of the legal act, let alone an error caused by deceit on the part of the selling party“.

This case is the clearest illustration of the fact that both in the process of purchasing shares and in choosing the right type of action, one should be assisted by appropriate advisors, as by choosing the wrong claim, one can lose before filing a lawsuit.