Decisions of company's general meeting are not transactions and cannot be declared invalid under Articles 203, 215 of the Civil Code of Ukraine - SC GC

Resolutions of the general meeting of participants (shareholders, members) and other bodies of a legal entity are not transactions within the meaning of Article 202 of the Civil Code of Ukraine, and the provisions of Articles 203 and 215 of this Code, which define the grounds for invalidity of a transaction, cannot be applied to them. Resolutions of the general meeting of company shareholders should be considered as acts of a non-normative nature (individual acts).

If a company's property is alienated by a resolution of the general meeting of its shareholders, the final result of the property transfer - a transaction formalised by an act of acceptance and transfer of immovable property - may be challenged and declared invalid.

These conclusions were made by the Grand Chamber of the Supreme Court.

A former member of an LLC filed a lawsuit against the LLC and another company, in which she sought to invalidate the decisions of the general meetings of the two companies, the real estate transfer and acceptance act and to apply the consequences of the invalidity of the transaction.

The claim was based on the fact that the contribution of the disputed real estate to the charter capital of the company was made by the LLC in order to avoid fulfilling its obligations to pay the plaintiff, as a former member of the LLC, the value of her share.

In upholding the claims, the courts of previous instances found that the defendants had committed fraudulent transactions, which is the basis for invalidating them.

The Grand Chamber of the Supreme Court overturned the decisions of the courts of previous instances in part of invalidating the decisions of the general meeting and stated that since the general meeting of shareholders is not a subject of civil legal relations, its decisions are not transactions within the meaning of Article 202 of the Civil Code of Ukraine and should be considered as acts of a non-normative nature (individual acts).

In the disputed legal relations, the act of acceptance and transfer of immovable property to the charter capital of the company was signed on the basis of decisions of the general meetings of shareholders of both companies. The real estate transfer and acceptance act confirms the will of the parties and also has legal consequences - the fact of transfer of ownership of real estate.

Thus, the final result of a set of actions to transfer property to the company's charter capital - a transaction formalised by an act of acceptance and transfer of immovable property - may be challenged and invalidated.

The Grand Chamber of the Supreme Court emphasised that the final qualification of a particular transaction as a fraudulent transaction should be made by the court in each particular case, taking into account the established circumstances. In this case, the courts of previous instances, taking into account the established set of circumstances (the moment when the transaction on the alienation of the disputed real estate was made; the LLC had no assets after the alienation of the disputed real estate; the two companies were related; the disputed real estate was contributed to the authorised capital of the company at a reduced value), reasonably qualified the disputed transaction as fraudulent.

Therefore, the transaction disputed in this case is fraudulent and should be declared invalid on the basis of paragraph 6 of part 1 of Article 3, parts 1-4 of Article 13, part 1 of Article 203, part 1 of Article 215 of the Civil Code of Ukraine.

In addition, the Grand Chamber of the Supreme Court noted that there were no grounds for applying the concept of ‘penetration of the corporate veil’ in this case. The plaintiff is not trying to hold the ultimate beneficial owners liable for the legal entity's obligations to her, nor is she filing a claim in the interests of the company. The lawsuit was brought by a former member of the company to protect her rights as a member of the company, in particular the right to receive her due share in the event of withdrawal from the company.

Resolution of the Grand Chamber of the Supreme Court of 18 December 2024 in case No. 916/379/23 - https://reyestr.court.gov.ua/Review/124809039. 

This and other legal opinions of the Supreme Court are available in the Database of Legal Positions of the Supreme Court - https://lpd.court.gov.ua.