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Unlawful Change of Ownership in Russian LLC (OOO). Court as sentinel of justice

Date: 21-09-2012
In July 2012 a series of legal proceedings which lasted for a year and a half where the lawyers of BBNP struggled to reinstate the infringed rights of OOO StroyServis (Odintsovo District of Moscow Oblast), as it had been unlawfully deprived of its 100% share in the Company.

In 2008, the tax inspectorate introduced an entry in the Unified State Register of Legal Entities based on a request filed by a person which did not have a power of attorney and was neither a member nor a sole executive body of OOO StroyServis. As a result, the share of the registered member of the Company became registered in another name. The tax inspectorate did not take into account neither absence of a declaration of will to assign the share by the legal member of the Company nor that of the documents confirming such assignment.
It is quite obvious that the rights of the legal member of OOO StroyServis has been infringed, however, to restore the state that existed before the infringement required a considerable time, effort and submission of several statements of claim.

The judicial practice as applied to such corporate matters is different, and lawyers have to provide an accurate and precise wording of the cause of action to prevent the court from a refusal to satisfy the claim on formal grounds.
Some courts point that an entry made into the Unified State Register of Legal Entities creates legal consequences and thus has a legal bearing for the establishment of a legal fact, and, therefore, an entry in the Unified State Register of Legal Entities can be appealed as a non-normative act of a competent government body.
Other courts believe that the current law does not directly stipulate a possibility to cancel entries in the Unified State Register of Legal Entities and restore previous entries, and in cases like this one must select other (appropriate) means of defending the infringed right.
For example, in the case in point the Arbitration Court of Moscow Oblast refused to satisfy the claim (under second action) on the grounds that the means of defending the infringed right selected by the plaintiff is not appropriate, because in case of state registration involving infringement of the law it is not the entry of state registration of changes made to the Unified State Register of Legal Entities that must be challenged but the approval of state registration.

Meanwhile, in respect of a virtually similar case the same judges of the trial court in February 2012 made a completely contrary decision which, however, served as a confirmation of the legitimacy of the position of the lawyers of BBNP with regard to the case of OOO StroyServis.
Nevertheless, Tenth Arbitration Appeal Court in its Ruling on the case of OOO StroyServis lawfully pointed that the absence of a procedure regarding cancellation of an entry in the Unified State Register of Legal Entities cannot constitute grounds for refusal to satisfy the claim of the plaintiff because "such approach would be formal and would not ensure reinstatement of the right which has been infringed".
This position of the court of appeal refers one to the fundamentals of the civil legislation, namely, clause 1 of Article 1 of the Civil Code of the Russian Federation which stipulates that the civil legislation shall be based on, among other things, the inadmissibility of anybody's arbitrary interference into the private affairs, the necessity to freely exercise the civil rights, the guarantee of the reinstatement of the civil rights in case of their violation, and their protection in the court.
The court shall definitely maintain the balance between the interests of the parties, and in case there is an express infringement of rights it shall make a decision which would properly protect the interests of a party and facilitate reinstatement of its rights, even if the law does not directly stipulate any given matter.

In its ruling, the court of appeal confirms that the request concerning cancellation of the unlawfully made entry in the Unified State Register of Legal Entities and restoration of the previous entry filed by the lawyers of BBNP are reasonable and shall be satisfied because in this way the rights of the legal member of OOO StroyServis which have been infringed would be reinstated.

The consequences of the said ruling issued by the court of appeal are quite predictable. The transactions of the Company made at the discretion of the member that has been unlawfully registered as such, during the period starting from the date of registration in the Unified State Register of Legal Entities and until the day when the tax inspectorate performs the obligation related to restoration of the state that existed before the day when the rights were infringed, may be judicially contested. The question arises whether the tax authority shall be held liable and reimburse for the damage resulted from the actions of unlawful owners of participatory interest.

Thus, for early and successful solution of such corporate disputes where the registration authority unlawfully made an entry in the register one shall keep in mind that they shall establish infringement. The court, in its turn, shall reinstate the right.

Summarizing the said ruling of the arbitration court: excessive formalism which deprives a party of an ability to defend its rights is inadmissable in a legal procedure.
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