Veikko Puolakainen successfully represented a client at Supreme Court in a fundamental dispute concerning the liability of a board member

NOVE’s attorney at law and partner Veikko Puolakainen successfully represented a client at Supreme Court of Estonia in a dispute centred around liability of a board member. In the judgment, the Supreme Court elaborated on the rules regarding the duties and liability of a member of the management board of a company. The complexity and fundamental significance of the matter is confirmed by the fact that the case was heard by the full panel of the Civil Chamber of the Supreme Court. As a result, the Supreme Court set aside the rulings of lower courts and gave in itself the final judgment on the matter.

The dispute centred around the issue of the rights and opportunities of a shareholder in a private or public limited company being acquired (and thus deemed to be dissolved) upon merger of companies, in particular if the shareholder disagrees about the proposed size of shareholding in the acquiring company (the share exchange ratio).

The Supreme Court held that the difference in the value of holding, arising from an exchange ratio determined incorrectly can be claimed by the shareholder from the acquiring company (refund according to § 398(3) of the Commercial Code), given that the exchange ratio was set too low in the merger. The aim of the refund is to compensate for the difference between the value of holding based on incorrect exchange ratio and that based on fair exchange ratio. If the acquiring company satisfies the shareholder’s demand for refund, the shareholder is deemed compensated for the difference between the amount of holding provided incorrectly, and fair amount of holding. Such compensation for the difference between the values of shareholdings cannot be subject to a claim for damages against a member of the management board, except in the case of exceptional circumstances. This would require that the claim for refund against the acquiring company cannot be satisfied (e.g. on grounds of insolvency or removal of the company from the register) and the damage resulted from abusive activity of the board member. In order to improve the uniformity of jurisprudence, the Supreme Court stated separately that, as a general rule, the amount of the damage should be fixed by reference to the market value of companies rather than the book value.

Attorney-at-law Veikko Puolakainen practices in complex business disputes and has successfully represented clients in civil and administrative litigation for nearly twenty years.