Helping a Russian businessman get a quick and clean exit from a partnership gone bad

Background of the Partnership

Mr. S, a Russian businessman, invested in a car-rental business in Paphos, Cyprus, owned by a close family friend, Mrs. J, who was facing financial problems. The car rental business appeared promising, considering the annual number of tourists, the increasing trend of that number, and the relatively inadequate public transport.

Initial Investment and Challenges

The car rental business was operated through a company owned by Mrs. J. Mr. S bought 50% of the shares of the company and lent the company €750,000 to purchase new cars. At the time, Mr. S had already lent amounts over €100,000 to Mrs. J without any agreements being signed.

Due to the close relationship between the parties, Mr. S and Mrs. J never signed a shareholder’s agreement, and perhaps even more important, never clarified their expectations from each other and the business, something that should take place when preparing a shareholder’s agreement.

Mr. S made significant changes to the business, including tripling the number of cars, equipping each vehicle with GPS, creating a new website, and renting a new office in a prime location. Despite these improvements, differing expectations and values led to conflicts between the partners.

Escalation and Legal Threats

Mrs. J, who was also Russian but married to a Cypriot, started threatening Mr. S. Feeling insecure as he was new to the country, Mr. S contacted us. We assured him that threats are a criminal offense and that we would ensure his and his family's safety.

We gathered all relevant documentation, including the company’s financial statements, to assess the situation. Our goal was to split the company to allow each partner to work independently, considering Mr. S's potential to lead the business successfully.

Strategy for Resolution

To achieve a quick resolution, we decided against involving the police for the threats, as it would complicate matters. Instead, we sent a warning letter to Mrs. J, highlighting the legal breaches. We also canceled the insurance policies of the rental cars to prevent the business from operating without Mr. S’s consent.

We prepared for a settlement meeting, ensuring Mr. S understood the meeting's objectives to align his behavior with our targets.

Negotiation and Settlement

The meeting lasted 4 hours. We avoided discussing the reasons for the relationship breakdown to prevent emotional distractions. We emphasized the benefits of resolving the dispute quickly.

From the outset, we informed the parties that we would draft a simple agreement on the spot if they reached an agreement. The focus was on asset division rather than cash payments to avoid disputes.

After negotiations, Mrs. J agreed to take her older cars and five new cars valued at €55,000. The agreement was signed, and Mrs. J was given an ultimatum to comply or face legal action.

Outcome and Benefits

Ultimately, Mrs. J conformed, transferring her shares to Mr. S in exchange for the agreed vehicles. Mr. S saved his investment and protected his cash flow by not paying cash to Mrs. J. He was able to focus on his business immediately, free from threats.