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Russia: A minority shareholder can be a parent company

April 28, 2009

The ILO has this interesting summary of a February 20, 2009, decision from the Eighth State Arbitrazh Court of Appeal decision holding that a minority shareholder corporation can be deemed the parent of a corporation whose shareholders have suffered lost profits if the “parent’s” representation on the Board could be said to have lead to that which caused the shareholder’s/investor’s losses derived from the “subsidiary.”  This is interesting because, while it applied to a corporation in this case, the lingering question is whether application of its holding, if left to stand, could be expanded to individual minority shareholders.  If so, this would obviously have international ramifications given that most corporations in which people and other corporations invest, conduct business internationally and are, therefore, exposed to decisional case law such as this (which expands the scope of criminal liability and exposure).  It’s also noteworthy that the action was brought by holders of ADRs.

In short, Farimex (a BVI corporation), which held 25,000 American advance depository receipts (ADRs) representing 0.002% of shares of OJSC VimpelCom, alleged that its long sought introduction to the Ukrainian market was effectively blocked by one of VimpelCom’s minority shareholders, Telenor (a Norwegian Corporation).  Because Telenor was represented on VimpelCom’s Board and could be said to have acted to ultimately delay a transaction that introduced VimpelCom into the Ukrainian market, Telenor was deemed a parent and held liable liable for lost profits.   For a cogent and detailed analysis, click here for the ILO.

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