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Nove and Leadell Successful for Hotell Parnu in Estonian Supreme Court

Nove and Leadell Successful for Hotell Parnua in Estonian Supreme Court

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Nove has represented the Estonian company OU Hotell Parnu in the Supreme Court of Estonia in a dispute relating to the validity of transactions concluded by a member of its board.

According to Nove, the Estonian Supreme Court held that § 181 (3) of the Commercial Code of Estonia (which provides that a transaction concluded outside the everyday economic activities of a company between that company and a member of the board is void unless authorized by the shareholders also applies where a party to the transaction is a company controlled entirely by a member of the board and the spouse of that board member. According to Nove, "the Court pointed out that the requirement of shareholders’ consent to a transaction involving a board member was set out to avoid a conflict of interest, as the board member might be tempted to prefer in a transaction his own economic interests rather than act in the best interests of the company," and held that "a similar risk of conflict of interest occurs when the other side of a transaction is a company controlled entirely by a board member and the spouse of that board member."  

"By adopting that position," Nove reports, "the Supreme Court limited the possibilities of board members to divert assets without the consent of shareholders in a situation in which a board member is acting in a conflict of interest."

According to Nove, "the above means, inter alia, that minority shareholders are able to defend themselves more effectively against harmful transactions that a majority shareholder exerting control over the management board would conclude with himself or a company controlled by himself. It should be underlined that in deciding over the shareholder’s consent to the conclusion of a transaction with an involved person, the shareholder whose interest is affected by the transaction is not allowed to vote."

Nove Partner Urmas Volens and Leadell Attorney at Law Tambet Laasik acted for OU Hotell Parnu in the matter both in the court of appeal and the Supreme Court.

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