Excluding a Business Partner: A New Approach by the Russian Supreme Court

In Russia, excluding a business partner from a company is a complex and lengthy process that often ends in failure. However, the recent decision by the Supreme Court of Russia has shed new light on this issue (Ruling of the Board for Economic Disputes of the Supreme Court of the Russian Federation of 3 September 2024 No. 305-EС23-30144 in case No. A40-265796/2022). The court ruled that a business partner can be excluded from a company if their actions harm the company's interests and prevent it from functioning normally

The case involved a company called Meridian, which was founded over 10 years ago to build a private road from China to Europe. The company had two co-founders, Alexander R. and Roman N., who each owned 50% of the company. However, their relationship deteriorated over time, and R. accused N. of blocking important decisions and harming the company's interests. The case went to court, and the Supreme Court ultimately ruled that N. could be excluded from the company.

The judges drew attention to the fact that company participants should not harm the business, and N.'s behavior showed obvious signs of abuse of right. What he did could not be justified solely by a different commercial approach. The businessman should have explained his actions and proved that they were necessary to achieve his goals or that the company's operation was no longer possible or was known to be unprofitable.

According to the Supreme Court, when resolving a corporate dispute, it should be determined who had a genuine interest in the company and who was seeking to capitalize on the conflict.

The Supreme Court's decision has significant implications for business practice in Russia. It emphasizes the importance of considering the interests of the company as a whole, rather than just the interests of individual business partners. The court also highlighted the owners’ need to act in good faith and to prioritize the company's interests over their own personal aims.

We believe that this decision will encourage business partners to be more mindful of their actions or inactions. Following behavior patterns indicate someone is not acting in good faith and in the interest of a company:

Solstico Legal is ready to provide tailor-made advisory and litigation as well out-of-court settlement support for preventing and resolving corporate conflicts.