KYIV, UKRAINE – The ESQUIRES legal team has secured a decisive victory in the Supreme Court, establishing a critical precedent for the protection of corporate rights within business associations. The ruling by the Cassation Commercial Court confirms that the organizational form of an “association of enterprises” cannot serve as a shield for violating shareholder rights if the entity functions in substance as a limited liability company.
Navigating the “Grey Zone” of Business Associations For years, “other” business associations in Ukraine have existed in a legal “grey zone.” Due to the absence of specific, modern legislation governing these entities, majority participants often dictated internal relations through the entity’s charter, creating fertile ground for the marginalization of minority partners. In the absence of statutory safeguards, these charters were frequently used to “squeeze out” partners by restricting their rights to a fair valuation of their shares.
The case handled by ESQUIRES involved a client who was a participant in an “educational-scientific-production association.” The majority participant in this entity had consistently sought to eliminate the client’s involvement, relying on a restrictive charter provision. This provision limited the list of assets available for valuation upon a member’s exit or exclusion, ensuring the client would receive significantly less than the true market value of their interest.
Strategic Defense: The “Substance over Form” Test The ESQUIRES team, led by Managing Partner Oleksandr Shkelebey and Counsel Vitalii Izviekov, formulated a defense strategy based on the principle of Substance over Form. Attorneys persuaded the court that while the entity was registered as an “association,” its operational reality mirrored that of a Limited Liability Company (LLC). The firm demonstrated that the association’s charter provided for:
- Commercial activity with the primary goal of profit-making;
- The creation of share capital divided into specific portions among participants;
- Proportional dividend distribution and voting rights at general meetings;
- A total lack of the coordinating or managerial functions typically associated with a representative business association.
Supreme Court Ruling and Market Impact The Supreme Court accepted ESQUIRES’ arguments, ruling that a formal entry in the state registry is not sufficient to bypass mandatory corporate protections. The Court held that if an entity’s internal structure and activities possess the characteristic features of an LLC, it must comply with the regulations of the Law of Ukraine “On Limited Liability and Additional Liability Companies.”
Consequently, the discriminatory charter provisions were declared invalid. This judgment guarantees the participant’s right to receive the fair market value of their share, calculated against the enterprise’s total assets, rather than a restricted subset of property.
Expert Insight “This case is a vital signal to business owners in Ukraine who utilize hybrid organizational forms,” said Oleksandr Shkelebey, Managing Partner at ESQUIRES. “It confirms that a formal name or a custom charter cannot override the fundamental right to a fair valuation of one’s investment.”
Counsel Vitalii Izviekov added: “By applying the ‘Substance over Form’ doctrine, we successfully pierced the formal veil of the association. This victory strengthens the rule of law in Ukrainian corporate relations and provides a clear mechanism for protecting minority interests in complex structures.”
The project was led by Managing Partner Oleksandr Shkelebey and Counsel Vitalii Izviekov.
About ESQUIRES ESQUIRES is a leading Ukrainian boutique law firm specializing in complex dispute resolution, corporate law, and business defense. The firm is recognized for its creative and practical approach to high-stakes litigation and its commitment to international standards of legal service.