New Supreme Court ruling on corporate law2

1. Transformation of a general partnership into a limited liability company

In recent months, we supported our client in the process of transforming a general partnership into a limited liability company. Despite carefully prepared documentation and the proper execution of the entire procedure, our application to enter the transformed company into the National Court Register (KRS) was denied. The reason for the refusal was the negative balance sheet value of the com§pany being transformed – the fact that the liabilities arose from loans granted by companies affiliated with the company being transformed was irrelevant. We appealed the court registrar’s decision. Unfortunately, such proceedings involve long waiting times, which, from the entrepreneur’s perspective, constitutes a significant impediment to ongoing business operations.

4. Positive outcome of the case – the complaint was upheld in its entirety

Less than three months later, a reformatory ruling was issued, granting our appeal in its entirety. Although such rulings lack justification, the direction of the ruling confirms the court’s decision – the district court fully agreed with our arguments. This is further proof that determination and consistency in action bring results. Unfortunately, this story also illustrates a less optimistic perspective – our client had to wait twelve weeks for the final decision, and each additional week entailed real costs and business losses.

Practice shows that registration matters can generate significant difficulties and delays in running a business. Therefore, it is crucial to have the support of lawyers who are familiar with the realities of proceedings before the National Court Register courts and can effectively protect the interests of entrepreneurs.

2. Why did the registry court dismiss the application to enter the transformed company into the National Court Register?

The court registrar, justifying the decision to dismiss the application for entry of the transformed company into the National Court Register, presented the following arguments:

• the conditions for the transformation of the company consisting in covering the share capital of the transformed company were not met;
• it cannot be assumed that the share capital of the transformed company was covered by the assets of the transformed company, since these assets have a negative balance sheet value;
• in the transformation process, it is not permissible for partners to make additional contributions to cover the share capital of the transformed company.

Regarding the last argument, we note that case law also adopts a different position, which allows for the recapitalization of a company undergoing transformation with a negative balance sheet value, for example, through additional cash contributions from shareholders. In our case, however, the court registrar adopted a strict approach and completely ruled out the possibility of transforming a company with negative net assets.