"As a rule, former or current business partners, competitors, and creditors orchestrate the majority of hostile takeover attempts"SAYS KIRILL FESIK, ATTORNEY, PHD IN LAW, MANAGING PARTNER AT MITRAX ATTORNEYS AT LAW
— Illegal takeovers... These words stay in the headlines of news feeds. What are the trends and real extent of illegal takeovers in Ukraine?
— Over the last few years, illegal takeovers have once again gained momentum. In contrast to the 1990s or the early 2000s, modern perpetrators of illegal takeovers are more masterful; they stay one step ahead of legislative changes, perfecting their tactics aimed at illegal takeover.
It is obvious that current anti-raiding legislation contains many gaps and shortcomings. At the same time, counteracting illegal takeover requires both interest on the part of law-enforcement and judicial authorities, raising the overall level of culture of public administration and introducing fair rules of entrepreneurship. And this is impossible without political will.
So, until now, the essence of this phenomenon had not been defined by law. This is due, among other things, to the complexity of its legal nature.
Without going into the existing definitions of the concept of illegal takeover, the essence of an illegal takeover comes down to illegal redistribution of property, obtaining the ownership of a piece of property in the absence of the will of the legal owner. An illegal takeover can affect both a whole enterprise due to forgery of constituent documents, and one particular item of real estate.
A modern illegal takeover is almost always associated with the existence of signs that a crime has been committed. Although the law does not provide for a separate corpus delicti for illegal takeover, arrangements for illegal takeover may be qualified as fraud, document fraud, arbitrariness, and robbery, depending on the schemes of illegal takeover applied.
Legal mechanisms that exist to protect the rights of owners from illegal takeover could be sufficient to significantly reduce the number of such cases. However, in recent years, we have faced a boom in the business of illegal takeovers, especially of agrarian businesses. The reform carried out in state registration in 2015 was, among other things, one of the reasons. The transfer of powers to notaries and accredited entities to perform registration led to an increase in cases of fraud in with respect to immovable property and corporate rights.
— What ways of protecting the rights of owner would you single out?
— The owner of property who has suffered from illegal takeover should use all possible mechanisms to protect his/her rights comprehensively and as soon as possible. The first step is to initiate criminal proceedings. This will ensure immediate investigative activities and seizure of property. A quick and effective counterattack in this direction will discourage the perpetrators of an illegal takeover, make them do wrong, and perhaps even get them to compromise with the owner of the property.
In the case of illegal takeover with illegal registration, you should use the mechanism of appealing against the actions of the registrar to the Commission for the Consideration of Complaints in the Area of State Registration at the Ministry of Justice of Ukraine. Legally, preparation and support of a complaint to the Commission is quite a complicated process, since it is not a judicial body and does not investigate the circumstances of violation of rights. The procedure for considering such complaints is not clearly regulated by law either. But such a protection mechanism may enable abolition of illegal registration actions within a fairly short term.
Depending on the nature of an illegal takeover, it makes sense to protect your property rights by appealing to a court with the relevant claims: on invalidation of the decisions of the general meeting, on invalidation of transactions, on reclamation of property from unlawful possession, on removal of obstacles to use of property, on recognition of the title to property, etc.
At the same time, it is worth bearing in mind that the use of the above means of protection often require a considerable amount of time, during which perpetrators of illegal takeover can take further actions with the property — resell it or otherwise transfer it to third parties, modify the property in one way or another, etc. All of this only complicates defense tactics. Therefore, during consideration of such cases in courts, it is necessary to apply for the application of interim remedies, which will enable the freezing of the relevant assets in the dispute.
— Which of the following will be the most efficient?
— The practice of protecting the rights of owner from attempts at a hostile takeover in Ukraine is not always efficient. There are several reasons for this. First of all, it is the unwillingness of courts and law-enforcement agencies to combat illegal takeovers. Within existing circumstances, the likelihood of bringing perpetrators of illegal takeover to justice is low.
Neither is it always possible in practice to restore the rights of the victim by returning the property or the whole company into his/her possession. Often this is due to inaction on the part of the very owner with regard to protection of rights, which allows the perpetrator of the illegal takeover to take further actions with respect to the property.
It is important for the victim to show maximum restraint and quickly initiate processes to protect his/her rights, taking into account all the nuances of an illegal takeover. Within the framework of criminal proceedings, it is necessary to pursue investigative actions aimed at establishing the circumstances of the offense. Alongside this, all other mechanisms, both judicial and extrajudicial, should be enlisted . The actions taken by of the victim in the protection of his/her rights increases the likelihood of bringing the perpetrators of illegal takeover to criminal responsibility and may encourage them to voluntarily return assets that have been seized illegally.
— What is the first thing that an affected owner of property should do?
— First of all, it is important to establish the perpetrators of such actions. Such information will allow you to more accurately determine the tactics of protecting your property and not only to eliminate the consequences of an illegal takeover, but to prevent such actions in the future. As a rule, former or current business partners, competitors, and creditors orchestrate the majority of hostile takeover attempts.
Since the schemes of illegal takeover are, in each individual case, unique and developed taking into account the structure of the company's capital, available documentation of property ownership, all possible errors in enterprise documentation, the specifics of the victim’s economic activities, the defense tactics should be worked out with all these nuances taken into account.
The owner should, in order to restore his/her rights, calculate in advance all the possible actions of the perpetrators of an illegal takeover, counteracting their further steps with the property that was seized.
At the same time, one needs to understand that the process of protecting the rights of the victim from illegal takeover is very expensive, and the desired results are not guaranteed. It is more reasonable to use preventive measures without waiting for the "first hints" of a possible illegal takeover.
Within the space of a few years, we have developed efficient algorithms of actions to protect rights infringed by illegal takeovers, which have proven to be efficient both in terms of returning corporate rights, real estate and other valuable property, and in developing systems of preventive measures aimed at preventing illegal takeovers. Moreover, we enlist in such work not only the attorneys of our association, but also specialists in such areas as information and economic security, public relations, property protection and other specialists, since anti-raiding has already gone beyond the boundaries of jurisprudence. This is a comprehensive and complex process.