Topical Issues of Forced Sales of Corporate Rights

Foreclosure on the debtor’s corporate rights and related problems were discussed at the round table held on November 30 in Odesa with the participation of the Odesa Regional Justice Reform Council and experts of the EU Project Pravo-Justice.

Sales of the share of a member of an LLC or an ALC within the scope of enforcement proceedings is regulated by Article 10 of the Law “On Enforcement Proceedings", while the peculiarities are defined in Article 53-1 of the Law “On LLCs and ALCs”.

The general procedure goes as follows:

• The EO seizes the debtor’s share, which is reported to the relevant company.
• Within 30 days, the company shall provide the documents that are necessary to determine the value of this share in the authorized capital of the company.
• After having determined the value of the share, the EO shall offer to buy it to other members of the company, since they have the priority right of redemption.
• In the absence of those wishing to purchase the share or of timely payment, the EO shall hand over the share to be sold at the auction through the SETAM platform in accordance with the general procedure.

At first glance, everything may seem very simple. However, in practice, the EOs face a number of problems: both at the stage of seizing corporate rights and at the stage of the state registration of the purchaser’s ownership of the share in the authorized capital of a company.

In particular, it comes to the failure to provide necessary documents or the distortion of information by the management of a company in order to downplay the value, which leads to difficulties in the assessment process and further sales of corporate rights.

It remains unclear who the EO shall give priority to if all the company members express their will to purchase the share in question?

The law does not explicitly provide either that the sales contract on the share shall be signed between the EO and another member of the company who intends to exercise his/her preferential right.

There are a number of problems at the stage of registration of the auction results, since the decision of a PEO or a SEO to seize the share of a company member does not give grounds for registration actions.

Possible solutions of these and other problems identified during the discussion will be streamlined into a document containing proposals on how to eliminate the existing legislative shortcomings.

The event was organized by the Council of PEOs of the Odesa Region in partnership with the Southern Interregional Department of the Ministry of Justice (city of Odesa) with the participation of representatives of the Ministry of Justice, EU Project Pravo-Justice, SE "SETAM", Office of State Registration, Odesa Regional Justice Reform Council (RJRC), lawyers, academia, and BTs.