In business practice, entering into foremost transactions is common. However, parties involved do not always pay sufficient attention to the approval procedure, relying instead on mutual trust, standard agreements, or internal arrangements. Yet, failure to comply with the established requirements for concluding and approving foremost transactions may lead to serious consequences, including the transaction being declared invalid.
A significant transaction can be contested by company participants, creditors, or other interested parties. Such disputes often arise during corporate conflicts, insolvency proceedings, changes in ownership, or cases of misconduct by company management. In these situations, it is crucial to determine whether the transaction meets the legal criteria of a “major” transaction and whether the required approvals from authorized governing bodies were obtained.
Declaring a transaction invalid may result in the return of assets or funds received under the transaction, a reassessment of obligations, financial losses, and additional business risks. Therefore, proper legal structuring of transactions and compliance with internal corporate procedures are essential for ensuring legal certainty and business security.
In this article, we will examine which transactions qualify as major, under what circumstances they may be challenged, who is entitled to initiate the invalidation process, and how to minimize legal risks.
What Is Considered a Major Transaction?
A significant transaction is defined as a single transaction or a series of interrelated transactions resulting in the acquisition, disposal, or potential disposal of assets or funds amounting to 20% or more of the company’s total asset value. The asset value is determined based on the financial statements for the most recent reporting period preceding the decision to enter into the transaction.
The company’s charter may stipulate that asset valuation to classify a transaction as “major” is based on an independent appraisal conducted as of the first day of the month in which the transaction takes place. In such cases, the transaction amount is compared to this appraised asset value.
In other words, if a company plans to, for instance, purchase equipment or issue a loan in an amount equal to one-fifth of its total asset value, such a transaction must go through a special approval and oversight procedure. This is due to the potential material impact on the company’s financial standing and the interests of its stakeholders (shareholders or founders).
Examples of major transactions include:
- A loan agreement under which the company issues or receives a substantial amount;
- A purchase and sale agreement involving real estate, vehicles, or other high-value assets;
- A pledge agreement involving high-value assets used as collateral;
- A suretyship or guarantee if it involves obligations equal to or exceeding 20% of the company’s assets;
- Several interrelated agreements whose cumulative effect meets or exceeds the threshold value.
It is important to note that both direct and indirect impacts on assets are considered when determining whether a transaction is “major.” Recognition of a transaction as major imposes an obligation to obtain approval from the company’s authorized governing bodies, such as the supervisory board or the general meeting of participants. Failure to comply may result in the transaction being declared invalid.
Who Approves Major Transactions and How
The procedure for approving a significant transaction depends on the company’s legal form and corporate governance structure. The general rule is that without approval from the competent body or without following the required procedure, a significant transaction may be declared invalid.
Who Makes the Decision
In most cases, the decision to enter into a major transaction is made by:
- The general meeting of participants (for limited liability companies);
- The supervisory board (if established and authorized accordingly);
- The board of directors (in joint-stock companies);
- The sole participant (if the company has only one founder).
The specific approving body depends on the provisions of the company’s charter.
Approval Procedure
Approval may be:
- Preliminary – granted before signing the agreement;
- Post-factum (subsequent) – if the transaction was executed without prior approval, it may still be approved retroactively (subject to legal conditions and time limits).
Preliminary approval is more commonly used, especially in cases involving substantial financial risk.
Documentation
The approval must be documented formally. This may take the form of:
- Minutes of the general meeting or board of directors;
- A resolution by the sole participant;
- Another properly executed and signed internal document.
The document must specify the nature of the transaction, the parties involved, its value, and the decision to approve it. In some cases, maximum parameters such as amount, term, and conditions must also be stated.
Such documentation protects both the company and its participants from potential legal disputes and consequences.
Consequences of Failing to Approve a Major Transaction
Failure to obtain the required approval for a significant transaction may lead to serious legal consequences for the company and its counterparties.
When Can a Transaction Be Declared Invalid?
If a significant transaction is entered into without the prior approval of the competent body and subsequent ratification, in violation of the required procedure, it may be declared invalid. In such cases, the transaction is considered legally void, and any assets or funds transferred under the agreement must be returned.
A transaction may be invalidated when a breach of the approval procedure significantly affects the rights and legitimate interests of the company’s participants or third parties.
Who Can Challenge the Transaction?
The following parties may contest a major transaction in court:
- Company participants whose rights or interests have been violated;
- Government regulatory bodies, if the transaction affects state interests;
- Creditors of the company, if their right to debt repayment is compromised.
These parties are entitled to file a legal claim to have the transaction declared invalid.
Limitation Period
There is a statutory limitation period for challenging a major transaction, usually three years from the date the claimant became aware, or should have become aware, of the violation. Missing this deadline prevents the legal invalidation of the transaction.
Therefore, it is essential to monitor and ensure compliance with major transaction approval procedures in a timely manner to avoid the risk of nullification and potential financial losses.
Court Practice
An analysis of court practice shows that when resolving disputes related to the invalidation of major transactions, Belarusian courts pay special attention to procedural compliance and the sufficiency of the evidence presented.
Examples from Belarusian Court Practice
Courts have repeatedly declared transactions invalid where companies failed to provide evidence of proper approval by the competent governing bodies, such as the general meeting of participants, the supervisory board, or the board of directors. For example, in one case, the court invalidated a real estate sale transaction because it was made without prior approval from the general meeting, despite the transaction amount exceeding 20% of the company’s total assets.
Approaches to Proving Damage and Abuse of Rights
In disputes over foremost transactions, courts require plaintiffs to provide clear evidence of the damage caused and abuse of rights. If the company or interested parties fail to demonstrate how the procedural violation led to negative consequences, the court may reject the claim. Importantly, the mere absence of approval does not automatically result in the transaction being declared invalid; the court also assesses the impact on the rights of shareholders or creditors.
Common Mistakes by Companies
Typical corporate mistakes include failure to follow internal approval procedures, lack of meeting minutes, or improperly executed resolutions. It is also common for companies to skip independent asset valuations or rely on outdated data, which may serve as grounds for challenging the transaction. Additionally, failure to properly notify interested parties further increases the risk of invalidation.
In summary, proper procedural compliance and careful documentation are key factors in successfully passing judicial scrutiny and minimizing legal risks.
How to Avoid the Risk of Invalidation of a Major Transaction
To minimize the risk of having a major transaction declared invalid, companies should focus on internal controls and strict compliance with corporate governance procedures.
Maintaining Internal Documentation
Accurate documentation and proper storage of all records related to decision-making processes are essential to protecting the company’s interests. The entire approval process should be documented through meeting minutes or official resolutions of authorized bodies. These documents must clearly reflect compliance with legal requirements, including transaction value, meeting dates, attendees, and the final decision.
Legal Due Diligence Before Signing
Before executing a major transaction, it is advisable to conduct a thorough legal review. Legal due diligence helps identify procedural issues, verify compliance with internal policies and legal standards, and correct any issues before signing. This greatly reduces the risk of invalidation.
Corporate Procedure Audit
Regular audits of corporate procedures help ensure that all approval rules are followed, documentation is timely and complete, and internal controls are functioning effectively. Such audits identify weak points in corporate governance and help improve internal policies to reduce litigation risks.
Legal Support During Transactions
Engaging an experienced lawyer to oversee the transaction process ensures that all steps from drafting agreements to approving decisions are handled correctly. The lawyer will ensure contracts comply with legal and internal requirements, facilitate proper approvals, and verify that the transaction meets all applicable criteria. This significantly reduces the likelihood of errors and disputes.
Overall, a systematic approach to managing foremost transactions and timely legal support is critical to safeguarding the company from risks associated with invalidated transactions.
How We Can Help
When dealing with major transactions, not only legal precision but also practical experience is essential. The AMBY Legal team provides comprehensive legal support aimed at protecting businesses from the risks of transaction invalidation and disputes with counterparties, participants, or regulatory authorities.
Legal Review and Transaction Support
We conduct legal due diligence of all aspects of a significant transaction, including compliance with the company’s charter, approval procedures, and accuracy of documentation. If needed, we provide full transaction support, from drafting contracts to obtaining final approval from the competent authority.
Restoring Corporate Procedures
If a company lacks or has outdated internal documents (such as minutes, regulations, or resolutions), we can help restore and align its corporate governance documents with current legal requirements. We ensure proper internal decision-making and approval processes.
Litigation Support
Our lawyers represent clients in economic courts in cases involving invalidation of transactions. We develop legal strategies, analyze evidence, participate in court proceedings, and provide legal protection at every stage of the process.
Consultations for Participants and Management Bodies
We advise shareholders, directors, and members of supervisory boards on transaction approvals, liability risks, and actions to take in case of disputes. We help establish a transparent and secure internal decision-making framework.
If you want confidence in the legality and safety of your transactions, entrust them to experienced professionals. We will provide reliable legal support and protect your business.
Conclusion
Significant transactions are a crucial part of corporate activity but come with elevated legal risks. Violations of approval procedures, failure to follow corporate governance rules, or poor documentation can lead to a transaction being declared invalid and cause significant financial loss. It is essential to remember that such transactions may be contested not only by shareholders but also by creditors or regulatory authorities.
To prevent adverse outcomes and safeguard your company’s interests, it is necessary to verify compliance with all legal requirements in advance, involve authorized management bodies, and ensure timely documentation. Effective internal control and the involvement of experienced legal professionals minimize risks and support the legal integrity of your business.
The AMBY Legal team is ready to provide practical support at every stage, from legal due diligence to courtroom defense. We will help you build a secure corporate structure, properly document decisions, and protect your company from disputes. Contact us for a consultation and ensure the legal safety of your transactions.
Contact us
If you have any questions related to major transaction approval or invalidation in Belarus, we will be happy to help! Our long-term experience will help you choose a lawyer to represent your interests.
- +37529142-27-19 (WhatsApp, Viber, Telegram);
- info@ambylegal.by.
