Intercompany Litigation - Sale of Shares - Sham Allocation of Partnership - Order for Payment of Unjust Enrichment

Critical Points: 

- The case involved, at a first level, a dispute between former partners who set up a limited liability company to operate and exploit a well-known online food ordering platform from partnered eateries. The parties intentionally and temporarily made a sham allocation of partnership interests between them to serve corporate interests. Despite the above agreement, one of the partners demanded a price, and a disproportionate one, in order to transfer the company shares that were fictitiously owned by him to their true owner. After the invalid sales contract had been drawn up (due to its fictitiousness and lack of legal form), he received cheques and obtained a payment order on the basis of these cheques, because they were allegedly not paid in full.

- The true owner of the shares, before the success of his legal action against the above-mentioned payment order and under the threat of enforcement against him, reached a settlement by paying the allegedly due price for the sale of shares. 

- The correct handling of the case led to (a) the final annulment of the above payment order of the former partner who was the aggressor, (b) the collection of the greater part of the above settlement amount by means of enforcement against the latter following the issue of a payment order, with a receiver, this time, the originally defending partner and c) the final settlement of the partners for a small part of the remaining debt by securing a contemporaneous waiver by the originally attacking partner of all the legal remedies he had exercised (including an appeal to the Supreme Court).

Background:

Individuals formed a limited liability company for the purpose of operating a well-known online food ordering application. However, in order to serve specific corporate interests, they decided to structure their participation in the company's capital in the form of a 25% and 75% stake each. However, the true (important) agreement of the parties was to participate in the company at 10% and 90% respectively, with our client holding the greater of these and paying the entire share capital and incorporation costs of the company, in the absence of the financial capacity of the other. Subsequently, when there were no longer grounds for maintaining the above distribution (rejection of the application for subsidy), the true beneficiary, in view of the commencement of the application, claimed that the actual situation of the company's shares should be reflected in the articles of association. The fictitious beneficiary, however, and apparent owner of 75%, demanded a price, and an exorbitant one at that, in order to transfer 65% of his share to the real beneficiary. Thus, the true beneficiary, in view of the risk of losing his entire investment, was forced to draw up a sales agreement with the price demanded and to issue cheques for payment of the price, while a notarial deed of transfer of the same shares was also signed with a price corresponding to the value of the shares. The fictitious beneficiary applied for and obtained a payment order from the Athens Court of First Instance on the basis of the issued cheques due to non-payment of the whole of them, while at the same time he initiated enforcement proceedings against the real beneficiary in order to collect the price agreed in the private agreement. The true beneficiary lodged an opposition and additional grounds for opposition and an application for suspension. Under the threat of enforcement, however, he was forced to pay the fictitious beneficiary the amount of the payment order issued by him before his aforementioned remedies could be enforced. 

Strategy: 

The key points for the successful outcome of the case for the beneficial owner were: 

- Additional grounds of opposition, the pleading of which included a well-founded claim that the private document by which the exorbitant price was agreed was invalid due, inter alia, to the absence of the required notarial form (the required form was observed for the transfer contract but not for the contract of sale of the shares). 

- The strategic compromise to avoid imminent enforcement and to safeguard the property of the true beneficiary, while expressly reserving the right to seek payment of the sums paid in the certain event of the success of the appeals lodged, which, of course, were not waived.

- The targeted creation of written proof of the aforementioned settlement (payment of the money by bank cheque, drawing up of the relevant private documents, obtaining a written reply from the fictitious beneficiary to the effect that he has been satisfied).

- The systematic treatment of the notional beneficiary's grounds of appeal and the confirmation at second instance of the favourable judgment of the first instance. 

- Following the final annulment of the enforcement order issued by the virtual beneficiary, the option of issuing a payment order for unjust enrichment (using the above-mentioned carefully collected documents) instead of bringing a lengthy action.

- The immediate commencement of enforcement and the taking of appropriate security measures (seizure of bank accounts, seizure of movable property, registration of a mortgage) against the originally attacking virtual beneficiary, who has now become defensive.

- Submission of a request for forfeiture of an ordered surety bond against the false creditor and in favour of the true creditor, following the complete rejection of the former's application for a stay of execution in order to avoid enforcement against him.

Outcome:

Following the additional grounds of objection raised by the true beneficiary, the Athens Court of Appeal annulled the payment order against him, accepting the nullity of the contract of sale of the company shares, without drawing up a notarial deed, and thus the enforcement proceedings against the true beneficiary were definitively cancelled. In particular, it was held that: '{...} the underlying relationship of value for the sake of which the cheques in question were issued, i.e. the contract of sale pursuant to the  {...} Private contract is invalid because the required notarial form was not observed. That plea must be upheld as well founded. That is because, as has been shown, the reason for issuing the bank cheques in question, on the basis of which the payment order was issued, on the basis of which the contested order for payment was subsequently drawn up, was the payment of the sale price of { ... }. Thereupon, and since the legal title on the basis of which the settlement took place was developed, the Athens Court of First Instance, since there was full documentary evidence of it and, of course, of payment, accepted the application for an order for payment against the virtual beneficiary. In particular, it was held that '{...} Accordingly, the respondent of the petition now owes the petitioner the sum of {...} with statutory interest from the service of this petition until full payment as an unjust enrichment to the petitioner's property as the executory instrument under which, and under threat of execution of which, the above payment with reservation took place has disappeared". The latter brought a series of appeals (opposition, suspension, interim measures) and remedies (application for annulment of the abovementioned judgment of the Court of Appeal) but was unable to stop the enforcement proceedings against him. The greater part of the claim was recovered through the seizure of the bank accounts of the fictitious beneficiary and the forfeiture of the guarantee ordered against him. The immediate and uninterrupted enforcement proceedings against him led the fictitious creditor to settle with the real creditor, giving up all the legal remedies he had brought against the last payment order and the abovementioned judgment of the Court of Appeal (action, opposition and appeal). The real beneficiary, in turn, had satisfied 90% of his claim at the time of the settlement and, furthermore, had succeeded in disengaging himself from the legal proceedings in view of the subsequent insolvency of the fictitious beneficiary. 

Conclusion: 

Many times in the context of litigation it may be necessary to "take a step back" in order to consistently and effectively organize the upcoming attack. Our experience in this case teaches us that in order to win a battle to the end, it is not only sufficient to have a substantial right of the party seeking judicial protection, but it requires strategic planning of actions that, in essence, translate into procedural flexibility and a sense of choosing the most direct and effective ways of satisfying the interests of our clients.