Blocking an Attempted Share Takeover by a Minority Investor

The challenge

The company's founder owned 73% of the shares, but a minority investor (22%) exploited a loophole in paragraph 14 of the investment agreement. It was about the right to appoint the board in specific financial conditions, which in practice meant a hostile operational takeover and removing the company's creator from decisions. The situation had dragged on since September 2023, paralyzing current work on a new CRM system for the furniture industry and discouraging the programming team from further work.

The conflict grew for 3 months, and the atmosphere in the Lodz office became unbearable. The investor blocked key transfers, claiming that the company was not meeting the assumed KPIs. In reality, it was only 3.4% short of reaching the goal, which resulted from a delay from one of the contractors. The owner was threatened with losing his voting rights at the general meeting, which would mean the end of his vision for the development of TechNode Solutions.

Our approach

The Consilium Krasiński team, consisting of 3 people — a financial auditor, a negotiator, and a corporate lawyer — analyzed 142 pages of documentation in 9 business days. We identified 3 key flashpoints that allowed for different interpretations of the provision on 'improper performance of functions'. Instead of going to court, which in Lodz would take at least 3 years, we focused on corporate diplomacy and hard financial data.

We prepared a report showing that a change of board in the middle of an implementation cycle would lower the company's valuation by about 19% on a quarterly scale. This was an argument that hit the investor's pocket. We conducted 4 negotiation sessions at our headquarters at 104 Piotrkowska St, acting as an impartial mediator who guards business stability.

The solution

We worked out Annex No. 4 to the investment agreement, which precisely defined the terms of eventual board changes. We introduced a 'fuse' mechanism that protects the founder as long as the company maintains an operating margin above 14%. The investor received better insight into monthly reporting in return, but without the right to block personnel decisions.

Additionally, we restructured the company's statute to avoid similar traps in the future. We completed the entire process in 11 weeks, ending the dispute with an official settlement signed on December 18, 2023. Both parties avoided costly trials and public airing of dirty laundry, which could have destroyed the company's reputation in the IT industry.

Results

Thanks to a quick response and tough negotiations, the owner retained 99.6% of his decision-making powers, and the investor withdrew from attempts to take over the board.

Timeline

1. October 2023
   Analysis of 142 pages of the contract and identification of legal gaps.
2. November 2023
   Three rounds of negotiations in Lodz with the investor's representatives.
3. December 2023
   Signing Annex No. 4 and stabilizing the situation in the board.