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Corporate Conflict over CEO Bonuses

Representing Company Co-Owner in Corporate Conflict over CEO Bonuses.

INTELLECT-S represented the founding member of a research-intensive LLC (in which he was a driving force) in a conflict with the other equity member who was also the company's CEO.

INTELLECT-S's client sued his partner in 2015 after the CEO refused to disclose the company's records and accounts for 2013 and 2014. The researching member obtained the records for 2013 after his INTELLECT-S counsel filed for the enforcement of the judgment entered in his favour, and the 2014 records, in the courtroom even before the judgment was pronounced.

Dmitry Zagainov, INTELLECT-S partner, and Anatoly Zazulin, INTELLECT-S associate, reviewed the records and found that the CEO had awarded himself RUB2,040,000 in unauthorised bonuses. Represented by INTELLECT-S, the researching member sued his managing partner again for the recovery of damages the CEO had caused to the company paying himself unwarranted bonuses.

Our comment:

The defendant alleged in court that he had awarded himself the bonuses legitimately acting on behalf of the company in his capacity as its CEO (i.e. representing his own employer before himself), which he alleged was legit and common practice, conflict of interest notwithstanding.

The INTELLECT-S counsel for the plaintiff demonstrated in court that CEOs' employers were companies represented by their general meetings of members or shareholders and not by the CEOs themselves. In the case at hand, the GM consisting of the researching and managing members (the plaintiff and the defendant CEO respectively) had never resolved to pay the CEO any bonuses. The court accepted the plaintiff's argument and judged in favour of INTELLECT-S's client.

The judgment gave the company back RUB2,040,000 paid in unwarranted bonuses, enabling it to distribute fair dividends and, secondly, gave it valid grounds to subsequently replace the CEO and expel the bad-faith member.

Corporate Disputes, Corporate Law

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