The practice of applying the squeeze-out procedure and its impact on the introduction of escrow accounts as a new type of bank accounts in Ukraine

Abstract

The article deals with the peculiarities of the squeeze-out procedure in Ukraine within the framework of European integration and implementation of European corporate governance standards. The author analyzes the positions of European courts on the legality and constitutionality of the squeeze-out procedure in the context of violation of minority shareholders’ property rights. The author ivestigates the grounds for declaring squeeze-out unconstitutional in Georgia, in particular, the procedure for determining the price of shares, that resulted in an imbalance of interests of the participants in the procedure. Taking into account the Court’s position, a new entity was involved in the process of share buyback – a court which, upon the application of the majority shareholder, appoints an independent expert or a brokerage company to price the shares and fixes the price of shares and the date of their compulsory buyback in its decision. It is found out that the main interests of a majority shareholder in the squeeze-out procedure are to reduce administrative costs of holding a general meeting, to get rid of passive shareholders and to minimise opposition from minority shareholders, and to avoid free-ridering. At the same time, the interests of minority shareholders in the implementation of this mechanism are to obtain favourable terms from the sale of the shareholding. It is found out that most of the lawsuits of minority shareholders in Ukraine were related to the underpricing of alienated shares. The method of determining the price of shares was to establish the market value of the company’s shares by a valuation entity. However, due to the lack of effective regulatory framework for this procedure, such a price often did not meet the fairness criterion. The author examines the position of the Commercial Court of Cassation as part of the Supreme Court of 2022 regarding the understanding of the fair price of shares, which means not a specific amount of money (value), but compliance by the issuer (supervisory board) with the procedure for determining the market value of shares provided for by law. The author analyzes the implementation of an escrow account contract into the legislation of Ukraine. The author clarifies the procedure for paying the price of shares to minority shareholders by transferring funds to the bank where the claimant has opened an escrow account in accordance with the Law of Ukraine “On Joint Stock Companies”.