The Preventive Measures of Internal Protection Against Abuses of Rights in Corporate Conflicts Olga Erahtina Higher School of Economics, Perm, Russia Erahtinaos@hse.perm.ru Abstract: Abuse of rights is using of rights of a certain person in contravention of their intended purpose that leads to certain negative consequences for other people whereas the existing legislation is not openly breached. Thus there are no objective grounds on which the person who abuses his rights can be held accountable. The situations when one party in the corporate conflict abuses the rights are quite common in joint-stock companies. As a rule, the aim of abuse of rights is to change relations of forces in a joint-stock company and to obtain the right to dispose of its assets. The multiplicity of cases of abuse of corporate rights are pre-conditioned by the fact that existing corporate legislation contains numerous dispositive norms and does not effectively regulates the rights and responsibilities of shareholders and management. The aim of our article is to develop the system of internal protection measures against abuse of rights in corporate relationships. The author explores the types and forms of abusing rights in corporate relationships, discovers causes of abusing rights and offers legal means of protection against abuse of rights on the side of management and shareholders of the company. The main focus of our article is on developing and implementing the preventive measures that aim at eliminating any possibility to abuse rights. Such measures are to be spelt out in local acts that regulates the company’s and its management’s activity. Thus, company’s management can often abuse their rights. Usually, it results from their struggle either with the opposing group of shareholders, trying to establish control, or with ordinary shareholders who impede implementing the company’s owners’ directions into life. At the same time, the abuse of right on the part of management which occurs most often is asset stripping. The legislation sets the minimum limitations aimed at preventing abusing rights by management when they make a transaction on behalf of the company. In particular, if the transaction exceeds 25 per cent of the book value of the company’s property, it should be completed only upon the prior approval of the Board of directors or the general meeting. Unfortunately, usually the owners of the company consider such measures to be enough and ignore those provisions of the law that state that there can be other cases when transactions completed on behalf of the company require prior approval. In practice, this approach provokes a lot of abuse on the part of company management. Obviously, the main measures to protect the company's assets are to be spelt out in local corporate acts. In particular, the sale of certain assets should be banned, regardless of the value of these assets. The conclusions and recommendations of this study are based on the analysis and synthesis of Russian law and corporate practice. However, the use of these findings and provisions will highlight key issues for improving corporate law and corporate practice in other countries. Keywords: abuse of rights, local acts, management, corporate legislation
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Introduction
Abuse of rights is using of rights of a certain person in contravention of their intended purpose that leads to certain negative consequences for other people whereas the existing legislation is not openly breached. Thus there are no objective grounds on which the person who abuses his rights can be held accountable. The situations when one party in the corporate conflict abuses the rights are quite common in joint-stock companies. As a rule, the aim of abuse of rights is to change relations of forces in a joint-stock company and to obtain the right to dispose of its assets (Osipenko 2010). The multiplicity of cases of abuse of corporate rights are pre-conditioned by the fact that existing corporate legislation contains numerous dispositive norms and does not effectively regulates the rights and responsibilities of shareholders and management. The aim of our article is to develop the system of internal protection measures against abuse of rights in corporate relationships. To achieve this aim we solve the following tasks:
to classify the forms of abusing rights in corporate relationships;
to discover causes of abusing rights in corporate relationships;
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