To become a potential object of a raider attack what one needs is just to have a business, especially a profitable one.
As a result of a twofold increase in the number of raider attacks in Ukraine during 2017, one can come to a conclusion that nowadays nobody is properly protected from raiders.
Your closest business partner, shareholder or just a trusted top manager, who is aware of the specifics of business from within, can become a raider.
Also, external market participants should not be discounted. If the first group of people usually acts in accordance with legislation, the second one uses less refined methods and practices foul means of property seizure.
Pure methods of raiding
Stock purchases from minority shareholders in order to acquire a blocking stake leads to the loss of control over the company.
In the majority of cases, this approach may be realized only among existing shareholders, as to form a blocking stake using only minority shareholders is often impossible.
To protect oneself from such a variant of attack is impossible. Fortunately, rumours about mass stock purchases among minority shareholders are spread fast and one can get ahead and offer more beneficial conditions to shareholders.
Additional share issues for “stock dilution” of partners
This kind of raiding is also practised among existing shareholders who control the company. In other cases, it is ineffective, as it requires significant uncontrolled financial investments.
In order to avert such a scenario, it is necessary to attend shareholders’ meetings. Owning at least 25% of shares you will be able to veto a court decision about an increase of the statutory fund. If there is no such ownership, you can vote against and demand redemption of own shares at market price by the company.
Foul methods of raiding
There is fictitious and real bankruptcy.
In both variants, it is necessary to appoint a subordinated liquidator or turnaround manager standing by intruders and sell out company assets.
Re-privatization
The procedure consists in judicial cancellation followed by a retrial of privatization process for subsequent property redistribution. Both shareholders and the state can initiate a process.
Fraud and document forgery
Over recent years a corporate system of Ukrainian companies has become to consist of 100% “foreign shareholders” behind whom in most cases a Ukrainian proprietor is hidden.
In the race for confidentiality, many overlook the fact that the legislative mechanism of validity identification of foreign documents does not exist, which raiders take advantage of.
Fraudsters forge letters of attorney and issue “new” constituent documents for foreign companies. Raiders certify copies of documents with translation by loyal notaries public and translators, who either cooperate with them or ignore flaws and absence of originals.
The mechanism is simple then: having notarized documents in hand, raiders sell your assets and make changes in the state registry.
Fortunately, it has become possible to cancel illegal registration operations by submitting a complaint to the Ministry of Justice in Ukraine. My experience confirms that the procedure works but the process of proving the validity of foreign documents is open.
Forcible seizure
This is the most convenient method of suppression of required documents and, as a consequence, legalization of raiders in the status of legal proprietors.
Unfriendly takeover
There is a series of actions which may be interpreted as an unfriendly takeover. However, nowadays it can have a hint of raiding.
Until recently the scheme when there was enough to own 40%+1 of shares to take control over a joint-stock company and control the executive body has been widely used. The person who controlled the company could block shareholders’ meeting without being registered to take part in it and obstruct decisions to change management.
However, after making amendments to the law “On Joint-Stock Companies” the quorum for joint-stock company’s meeting has decreased from 60% to 50%. Afterwards, it has become more difficult to retain control over the company.
Then, in order to disrupt a meeting “titushkas” and loyal judges were involved.
The latter imposed a ban on meetings or arrest of shares within the framework of criminal cases opened on violation of privatization. Judges did not mind that shareholders did not participate in the process of privatization and the number of arrested shares exceeded the number of shares involved in privatization.
The court of appeal will certainly revoke this illegal decision after a while. The criminal case will be closed but you will lose time. The process will continue for years and raiders will make the most of the company.
Precursors of takeover
An abrupt change of your business partner’s behaviour in various forms.
A suddenly increased unnecessary attention of inspection and law-enforcement bodies.
An unfounded legal action regarding your economic activity and disputes over corporate rights.
Any inexplicable and unexpected changes in registration data.
These signs can be evidence of a planned raider attack.
How to protect oneself
In order to protect business it is advisable to take such precautionary measures:
- Protection of corporate information
Apart from a distinct differentiation of employee access rights to information and creation of special archives better not on-site monitor regularly registration data of the company and court registers.
- Legal protection of property
Business restructuring and concentration of main assets held by a third party company that is not involved in company’s business activity, hence you may mitigate its participation in suspicious judicial processes.
Creation of regulated accounts payable to your affiliated bodies with an obligatory pledge agreement of immovable assets or immediate pledge of company’s corporate rights so that to secure debt.
All these protective mechanisms cannot guarantee that your business will not become an object of raider attacks, however, at least will make your asset less attractive and raider attacks more expensive.
- Security system in the company
Prepare response protocols for employees of the company. Involve all channels: turn to the law-enforcement bodies, courts, registration governing bodies, press and use social networks.
Unfortunately, nowadays only the wide publicity of raider attacks can protect legal rights of private business.