Legal Updates

Without an agreement otherwise later shareholders loan do not have priority over earlier ones

September 15, 2019
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An investor invested funds in a company that built a commercial center through interest bearing shareholders loans against the allocation of 12% of the company's shares, with the investment agreement stipulating that the loans in the company would be repaid proportionally. Despite this, the investor did not receive information about the company's operations and the later shareholders loans made by the other shareholders were repaid but not the loans provided by the investor.
The Court held that the investment agreement was breached and that the investor is entitled to compensation and full information about the company. The investment agreement set that loan repayments would be proportionally and did not separate between the loan under the investment agreement and future loans. Thus, it is not possible to prioritize repayment of loans, even if had the loans been extended a banking institution it would have require priority in repayment. In addition, the investor is entitled to full information about the company and not only to financial statements, both because the company was managed with minority opression that justifies the provision of full information and because a controlling shareholder has a special duty of trust towards the minority, especially because the control holder acted without informing the investor about the company's profitability and financial conduct.