law-firm-cyprus

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

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

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 in order to buy new cars. At the time, Mr S had already lent amounts in excess of €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 a lot of changes to the business. Amongst other, the company invested in new cars tripling the number of existing cars, equipped each car with a GPS system, created a new website and tailored software, renovated its office and rented a new office in a prime location. Despite this it soon became evident how the different expectations, values and drive of the partners blocked their ability to work together. The partners started blaming each other and soon things escalated.

Mrs J who was also Russian but married to a Cypriot started threatening Mr S. Mr S felt insecure as he was relatively new in the country without many contacts and a clear understanding of how things worked. The end result for him what that he was locked in a situation where he stood to lose the €850.000 invested and was afraid for his security and his family.
Mr S contacted us on a Monday morning. The first thing we addressed were Mr S’s fears. We explained that the commission of threats is a criminal offence and made sure he was confident that we would not allow anything to happen to his family or himself. Then we explained our options and we underwent a process of clarifying the information in our disposal. We requested and soon received a copy of the company’s financial statements and all relevant documentation in order to be able to assess the situation. After clarifying the knowns and the unknowns, we planned our actions.
Our target was to split the company to allow each partner to work on its own without restriction since our client could become a market leader in his sector. Considering the history of the business and the changes introduced by Mr S in a very short time, we felt confident in Mr S’s ability to achieve great results and drive the business forward faster without Mrs J. In addition, Mr S had invested a significant amount of money and litigation would take long, involve risk and expenses.
Achieving fast closure would require us to avoid going to the police for the threats as it would complicate matters. Considering that the threats were vague, we decided to send a warning letter to Mrs J, cautioning her about the threats and pointing out the breaches of the law she committed. We proceeded to speak to her lawyer and arranged an appointment to consider settlement within 4 days from the initial appointment with Mr S. In the meantime, we cancelled the insurance policies of the rental cars to stop the business from operating without our client’s consent and to prevent Mrs J from taking cash from the company that she wouldn’t declare. We prepared our strategy for the settlement meeting and clarified again the expectations of the meeting to Mr S in order to align the behavior of Mr S in the meeting with our targets.

The meeting lasted 4 hours. We set the rules of the meeting, avoiding to discuss the reasons for the breakdown of the relationship as these “stress points” bring sentiment that clouds reason. We pointed out what the parties had to lose if they didn’t solve the dispute then and emphasized that the parties can go on continuing their business in a matter of a few days if they agreed there.

From the beginning of the meeting, we informed the parties that if they agreed, we would draft a simple form agreement on the spot to make sure that the parties would abide by what was agreed.

Trying to avoid the payment of cash and the valuation of investments which would give rise to disputes and further delays, we focused on returning the cars Mrs J had originally bought and transferred to the company as her initial contribution or alternatively, our client taking the cars bought with his financial contributions. However, some of the old cars were sold (9 out of the 25) and Mrs J somewhat unreasonably wanted to take new cars as she did not agree that the value of the new cars was slightly less than our client’s investment (arguing that they were bought with the company’s profits and not our client’s loans). There were no audited financial statements for the last year when many of the cars were bought and Mrs J would not accept the accountant’s draft.

At the same time with splitting the business, we had to solve the problem of personal loans made to Mrs J, which in the absence of evidence and most money being paid in cash to her meant that it would be very difficult to get back from the Cypriot Courts.

As the discussions went on, Mrs J finally agreed to get her 16 older cars transferred to a company of her choice and she requested to get some new cars of the company which were worth €120.000. Negotiations went on and Mrs J finally agreed to get her old cars and 5 new cars with an agreed value between the parties of €55.000. An agreement was signed between the parties and while Mrs J tried to retract from this she received an ultimatum: She either conforms or we file a court claim together with a summary judgment for specific performance.

Finally, left with no other choice, Mrs J conformed and her shares were transferred to Mr S. In return she received cars from the Company as agreed.

As a result, Mr S saved his existing investment and protected his cashflow by not paying any cash to Mrs. In addition, he was able to focus on his business immediately. In addition to a good bargain, no more threats were made against Mr S.

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