Minority shareholder rights: common forms of oppression and existing legal protection mechanism and remedies in the Armenian legislation

Abstract

This Paper aimed to mainly show and underline the gaps and loopholes in the Armenian existing legislation regarding the rights of the minority shareholders. Alongside with the existing domestic legislation, international best practice is discussed in the face of “Commonsense Principles 2.0” developed in October 18, 2018, by the representatives of US corporations, pension funds and investment firms and G20/OECD Principles of Corporate Governance (2015). It is worth mentioning that the OECD Principles of Corporate Governance are not just recommendatory for Armenia. Not after the ratification of CEPA, as it clearly places an obligation on Armenia to refer to the OECD principles, mentioning that the further development of corporate governance policy shall be in line with international and, in particular, OECD standards. It is very important to assess the quality of the regulation we already have in the sphere of corporate governance, evaluate the balance of rights of shareholders and formulated the existing problems and contradictions with the international best practice and OECD recommendations. Assessing the domestic legislation with the focus on minority shareholder rights two existing mechanisms were underlined, which in their current form, contain risks for the minority rights. Those are the consolidation and the increase of company’s charter capital by the increase of nominal value of the shares or by the issuance and allocation of new shares. Although, it there is a lack of statistical information regarding the pattern of behaviour of the majority shareholders regarding these two main mechanisms, in the cases discussed in the Chapter III of this Paper, were consolidation was the most used mechanism, it is clear that in all cases it was used to freeze the minority shareholders out from the entities. The continuous use of the mechanism by the same firm as it was in the case of "Yerevan Ararat Brandy-Wine-Vodka Factory" OJSC shows, points out on the problem once again. When fraction shares arise due to consolidation, the owner of those shares has no other option: the shares shall be bought back by the Company at the market price. The minority shareholder has no mechanism to have a say in the calculation of the market share as well, as it is in most of the cases determined by the board, in which the shareholders holding less than 10 % shares have no guaranteed seat. Basically, the minority shareholders in current construct, have a problem of being voiceless and also having their ownership rights disregarded, in case their interest go against those of the majority, and this is an approach legitimized by the decision of the constitutional court.