COBALT’s client obtains judgement that confirms the right of a company to freely determine the model how its business shall be restructured

On 16 November 2017 the Supreme Court of Latvia passed a judgment, recognizing the right of SIA Reaton, Ltd., a long-time client of COBALT to choose upon its discretion the most suitable form of business restructuring.

Board of the company proposed to the shareholders to spin off certain business areas to daughter companies. Majority of the shareholders approved the plan in an annual meeting. The case was brought before a court by a minority shareholder, who disagreed with the plan. The minority shareholder attempted to block decision of shareholders’ meeting on the grounds that restructuring of business proposed by the board should have been implemented as a reorganisation for which a 2/3 majority of shareholders’ vote is required. The minority shareholder insisted that the contemplated restructuring must gain support of the respective minority shareholder.

The Supreme Court stated that according to the Commercial Law of Latvia there are two options, how a company may transfer its business to a subsidiary: 1) to establish a new company and to invest business into the capital of daughter company or 2) to reorganise a company by splitting off certain businesses into new companies. The company has the discretion to decide which of the forms are most suitable for its purposes. Thereby, minority shareholder cannot claim violation of its corporate rights if the model, selected by shareholders does not demand qualified majority of votes.

This is a landmark decision in relation to complex topic of shareholders involvement in company restructuring, it shall further stimulate corporate activity in companies with diverse shareholder base.

The client was advised by COBALT Latvia Managing Partner Lauris Liepa and Specialist Counsel Sergejs Rudāns.